Four days ago, Former President Donald Trump said, "I feel the president should have at least [a] say in there," referring to the Federal Reserve. Along with many countries, the United States has chosen to separate fiscal and monetary policy. Fiscal policy, the government's use of spending and taxation to direct the economy, is determined by elected officials, a combination of the legislative and executive branches of government. On the other hand, monetary theory is determined by the Federal Reserve, an independent branch of government. However, it must be noted that the President of the United States appoints the Chairman of the Federal Reserve on a four-year term.
Determining whether the POTUS should have more control over the Federal Reserve is a nuanced issue that requires a deep understanding of both politics and economics. The United States government was founded on the principles of checks and balances. The separation of the legislative, executive, and judicial branches was a deliberate act, with each branch having some, but not complete, control over the others. While the Federal Reserve is not one of the three main branches of the government, a similar thought process applies: granting the executive branch control over not just fiscal policy, but also monetary theory, would be akin to handing one person the master key to the United States economy. This complexity is what makes this issue so engaging and important to consider.
However, politics aside, is there a possibility that the US economy could be better run if there were synchronization between fiscal and monetary policy? Many economists have raised concern over the apparent disconnect between the two possible methods to control the country's economy in recent years. In a very recent example, between 2022 and 2023, as interest rates reached record high rates, the Fed worked hard to implement a contractionary policy by utilizing high interest rates. However, the White House did not coordinate with the Fed; instead, amid the roll-out of Biden's Infrastructure Act and sustained spending across the board, their actions were not synonymous with the Fed's contractionary policy. One cannot blame the White House for their actions, though. It is not the responsibility of the executive branch to coordinate with the Fed because, at the moment, this branch of the United States is not at all responsible for the Fed. In the unlikely event that Trump gets his way, there would be some synchronization between these two bodies.
Despite the potential benefits of coordination between monetary and fiscal policy, the idea of the President wielding such power over the economy is a risk we cannot afford to take. Therefore, I firmly believe that the executive branch should remain completely independent of the Fed. This independence is a cornerstone of our current system, providing assurance that no single individual can exert excessive control over the economy. While the management of the economy could be significantly more efficient if monetary and fiscal policy were coordinated, the risk of one person having so much power outweighs this potential benefit.
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