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Well, the comments recently by the White House about Fed Chair Jerome Powell bring us back to a concern over Fed
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independence that we saw pop up in the first Trump administration. Now, the importance of independence of the
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Federal Reserve is vital on the path to fiscal policy. Yet, it's seemingly challenged by the beliefs of both the
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president and some of his adviserss. But how much concern should there be right now? Peter Kiy Brown is an associate
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professor of financial regulation as well as legal studies and business ethics here at the Wharton School. He's
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also author of the upcoming book Private Finance, Public Power: The History of Bank Supervision in America, which comes
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out June 24th. And he also wrote The Power and Independence of the Federal Reserve back in 2016. Hi Peter, great to
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talk to you again. Glad to be here again. So, as this has all played out, especially in the last couple of weeks,
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uh give us your thoughts on this again, this kind of having to focus on the topic of independence of the Federal
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Reserve. You know, uh we never stopped focusing on it, I think. Um and and for good reason. The Federal Reserve has
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been endowed with extraordinary powers over our economy and through the economy, uh our society. And it's right
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for us as citizens and for the politicians we elect to hold the Fed to account and to be uh curious and even uh
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sometimes skeptical of the Fed's powers. That's called democratic accountability.
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But what we don't want to do is destroy it. We don't want to destroy what makes
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the Federal Reserve so important. and it's insulation from the day-to-day of the
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24-hour press cycle or the whims of of any president, Republican or Democrat. That's the stuff that we want to guard
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against. Not because we think that the Federal Reserve is some, you know, delphic oracle uh that knows things that
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can't be discerned from anyone else by anyone else in any other way. But it's
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because we think that turning monetary policy and economic policy over to a loyalty test to any one individual uh
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will create bad policy. And so we never stop focusing on it because we're always
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trying to get that line right between democratic accountability which is good uh uh without eroding technocratic
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expertise which is also good. And so that balance is what we're trying to strike. So talk a little bit about the
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kind of as the Federal Reserve was developed many many years ago, the importance of independence as a concept
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in its abilities over time to be able to put forth the policy that has kind of helped drive our our economy in general.
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You're right. I it's a great question and history has given us lots of examples, good and bad, about how this
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has worked. At the beginning in 1913, what we now call that independence, it wasn't called that at the time. uh it
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was more about letting bankers be bankers. So the idea is that bankers know best and so uh they'll know how to
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manage the economy in the interests of essentially profit maximization and loss minimization to the banks themselves.
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And the banks that I'm talking about are the Federal Reserve banks. But that kind
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of independence quote unquote uh led to the Great Depression. That's overstating
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it just a little bit, but uh Federal Reserve bankers acting in the interests of their shareholders are what made the
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Great Depression great. They just did too little uh of the kind of central banking that we'd want to see. Today,
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central bankers don't think of themselves as bankers per se. They think of themselves as technocrats, as
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experts. And uh over time what we have learned over many decades of experience is that when we let those experts keep
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their eye on the medium term uh then they're going to create policy that's
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better for all of us. Not perfect. We've seen some errors coming out of central
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banks uh in and not just the last decades but in the last few years. Uh so no one's claiming that central bankers
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are going to be perfect at their jobs. What we're saying is that they're going
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to be better uh than the alternative. And the alternative is setting interest rate policy from the Oval Office
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according to, you know, the whims of whatever the president wants to see that day. And that's the that's the main
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alternative to central banking. And that's what's under threat today. Well,
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you gave the the one example from from the past, but how frequently have we seen the independence of the Federal
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Reserve kind of tested by elements of the federal government over time? Oh, it's it's happened many many times
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uh uh to to lesser and greater extents, but there's been no no president in US
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history quite so enthusiastic about uh about pulling down uh uh institutions like Donald Trump. And that was true in
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his first administration. It's true now, too. What the Federal Reserve represents
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to President Trump is just sort of a separate power center. It's something that he's not controlling. We've seen
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his reactions to other kinds of separate power centers in the media, in the judiciary, in the
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military, certainly in Congress, in universities. Uh, and we see it in central banks, too. So, I'll say that uh
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there is bipartisan enthusiasm from presidents going back uh to Woodro Wilson with almost a a steady throughine
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uh until Donald Trump of uh being extremely impatient with the Fed. That's a part of the job when you take your
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oath of office there's like an asterisk that says also always be wondering what
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if the Fed is going to be in your interests the difference is what you do about it and there President Trump has
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shown himself uh to really vent his spleen on social media uh against the Federal Reserve and I think the the key
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point here Dan is that there are consequences to this and those are the consequences that that worry me the most
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because so much about Fed independence is about norms and conventions these kind of tweets, they undermine
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that independence in exactly that way. Well, and I guess even as we sit here today, there's a conversation about
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upcoming Federal Reserve meetings and whether or not we will see another rate cut by the Federal Reserve. And to a
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degree, it does make you wonder whether or not some of this commentary is having
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some sort of impact. And obviously Fed Chair Pal has talked a lot about the data, but still there is that question
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of when we see that next rate cut, is it somewhat influenced by what we've seen
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play out here? I think it's such an important question. And you know, Chair Powell would say absolutely not. We
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never let that kind of thing influence our thinking. And I think he's both right and wrong about this. He's
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definitely right in the sense that uh it is not in Jay Powell's DNA to capitulate
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like this. Um, and so I don't think he's scared of Donald Trump. I think he's
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ready to fight this out. Uh, uh, for sure. Um, but the narratives, the headlines after a cut that the, you
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know, Chair Pal and his his colleagues will say is justified on uh, on the data will always include every single one
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these articles will include this fight in it. And that shapes the narrative about the Fed and it shapes the
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narrative about the Fed's legitimacy. And it gives people uh questions to explore and think about uh that the Fed
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uh should not and does not want to want them to be thinking about which is exactly this question. Did the Fed cut
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in reaction to Donald Trump? Now, there's a bigger problem too with this and that is uh right now we're seeing
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the Fed have to make some calls and decisions about uh uh some hard hard challenges. Um but what we're what we're
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also seeing is we have a dynamic economy. Some very strange things are happening in it. And the great glory of
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the Federal Reserve is it is a dynamic policymaking body. So it can't just do
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what has always been done in the face of changing circumstances. It's going to
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need to do new things. And in order to do new things like we saw in 2008 after CO 19, many other instances requires
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political cover. You can't have experimental central bankers who are simultaneously managing a battle with
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the sitting president. And so when President Trump tries to demean the Federal Reserve in this way, uh he is
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he's limiting their power of maneuverability and that's extremely unfortunate. Peter, appreciate the time
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today. Thanks very much. All the best. All the best to you. Thank you. Thank you. Wharton's Peter Kiy Brown as we
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mentioned author of the upcoming book private finance public power due out on June the 24th