Don’t Let the Fed Become a Wing of Mar-a-Lago

Kevin Hassett Unfit to Run the Central Bank

Nine months in, President Trump has expanded executive power over most of the federal government and much of American society.

Who’s next? The Treasury Secretary has announced five names Trump is considering for chairman of the Federal Reserve—an institution shaped from its founding by a fear of federal control.

When Congress enacted the Fed, in 1913, the system was designed with checks and balances. The founders wanted a central “reserve”—a reservoir of liquidity to rescue banks in times of panic. Yet they feared that such a reserve could be dominated by a corrupt or favor-dispensing executive.

The Fed has suffered overbearing Presidents since then. By a country mile, President Trump presents the most serious threat.

It will be up to the Senate to reject any nominee who cannot defend the Fed’s integrity—including by resisting commands from the Oval Office. Among those floated as possible nominees, Trump’s most likely choice—Kevin Hassett, his chief economist—is profoundly unfit.

The relevant history (bear with me; we will get to Hassett) dates to 1836, when Andrew Jackson destroyed the Second Bank of the United States. Jackson’s fear was that cronyism would corrupt the banking system.

Rep. Carter Glass, the chief sponsor of the Federal Reserve Act, in turn feared that any hint of federal presence would “summon the ghost” of Jackson. Glass, a Virginia Democrat, conceived the Fed as a decentralized body, to be run by bankers, not the President.

Glass was so worried about concentrating power that his first draft called for twenty regional banks around the country. Each would regulate the money supply within its region.

Glass braved a snowstorm to sell his program to the President-elect, Woodrow Wilson, in Princeton, the day after Christmas, 1912. Wilson praised Glass’s draft. However, he said, the regional banks needed a layer above them—“a capstone.”

Wilson, an historian-turned politician, used that innocent-sounding term so that Glass would not be alarmed. Glass was alarmed, but reluctantly complied.

During the legislative process, a progressive lawyer, Louis Brandeis, persuaded Wilson to make another change. The seven members of the capstone—what we call the Federal Reserve Board—would be Presidential appointees. That is how Presidents from Wilson on to Donald Trump got their influence.

Still, Presidential control was limited in a manner similar to the familiar separation of political power between the federal government and the States. Practical authority was largely vested in the regional Banks, particularly the Reserve Bank of New York.

The regional Reserve Banks (ultimately twelve) were owned by private commercial banks, not the government. Since banks issued the currency, the money supply would be self-regulating.

The other bulwark against Oval Office control was Congress. Contrary to common supposition, the Fed was not “independent” of politics; rather, Congressional influence provided a balance to Executive influence. Indeed, the legislative branch was superior, having the exclusive power to modify its creation.

But over the years the regional Banks have atrophied. Today, authority lies with the capstone in Washington—er, the Federal Reserve Board.

Congressional authority remains in principle. Will it be honored in practice?

Under the second Trump Administration, warping policy to benefit the President’s political and financial self-interest, and that of his allies, has become standard procedure. A small sampling of his corruption includes the Trump family selling millions in tokens to those seeking Presidential favors; Trump’s pardon of Changpeng Zhao, the Binance founder, a key supporter of the family crypto venture; Trump wresting a $16 million settlement from a risible defamation suit against CBS while the network’s corporate parent was seeking government approval for a merger.

The President does this openly. He acts as if he does not recognize a distinction between the public and his personal interest—which he does not.

What if Trump installed a lackey to control the Fed? We could expect that this nominal public servant would dictate interest rates according to Presidential whim.

We know where his whim leads—toward inflation. In all seasons, Trump demands low interest rates. These might favor his real estate assets but not the public interest in having a stable currency.

Aside from determining interest rates, the Fed, as a regulator, has vast power over commercial banks. Why not use the Fed to punish any bank that disagrees with, or otherwise elicits the ire of, Trump? He did it to law firms and colleges. He would do it to banks.

Why not use the Fed to guarantee loans of favored companies? It’s easy to imagine that a Trumpian Fed would monetize, or guarantee, his pet crypto assets.

The Senate’s responsibility is to approve a nominee with demonstrated independence of character and thought. Most of the names floated, and others yet unmentioned, deserve consideration. However, Kevin Hassett is an unblinking apologist for Trump.

Once a free-trader who in 2011 derided a Trump tariff proposal as “terrifying,” Hassett has done a complete flip. More worrisome, he suggested there is a “partisan pattern” to government data releases, thus defending Trump’s firing of the Bureau of Labor Statistics director, a brazen attempt to interfere in data collection. Speaking of a partisan pattern, Hassett suggested that cost overruns on a Fed reconstruction (the very first building project ever to blow through an estimate, I guess) might be legal grounds for removing the present Chairman, Jerome Powell.

Powell’s alleged sin was not cutting interest rates as quickly as Donald Trump wanted. The irony is that Powell’s real mistake was to have sustained low rates for too long under President Biden, leading to the soaring inflation that helped to elect Trump in 2024. No matter; Trump does not do gratitude.

Paul Warburg, one of the Fed’s inaugural governors, said he hoped the institution would become one of America’s great monuments, “like the old cathedrals of Europe.” Warburg’s monument, a bedrock of American financial strength, is under threat. The Senate has a duty to guard its integrity – not let it become a tinplate extension of Mar-a-Lago.