Fed's Williams says independence is key to winning fight against inflation

By Greg Robb

New York Fed president's comments comes after reports Trump is mulling ways to increase White House's sway over central bank

New York Federal Reserve President John Williams on Friday said that the U.S. central bank needed independence from the White House in order to get inflation back to its 2% target.

"In order to get inflation under control, central banks must own the responsibility for maintaining low and stable inflation and have the independence of action to achieve that goal,Williams said, in remarks at the Hoover Monetary Policy Conference at Stanford University.

To try to minimize political pressure, Congress has mandated that the seven governors at the Fed's board in Washington have the ability to serve 14-year terms. The 12 presidents of the regional Fed banks are selected without any input from Congress.

In recent years, the Fed has adjusted the four-year term of the Fed Chairman so that it ends two years after presidential elections. That ensures that global financial markets don't have to worry that Fed policy will shift dramatically with election results.

In his remarks, Williams did not mention a recent Wall Street Journal article about former President Donald Trump and his plans for the Fed if he wins a second term. The Journal report said that Trump and his aides are discussing steps to try to reduce the Fed's independence, including giving Trump a say in the Fed's interest-rate decisions.

Fed watchers don't think Trump's nascent effort to sideline Fed Chairman Jerome Powell will succeed and could be destabilizing.

"There are many legal, practical, and political reasons why this Trump or staff dream is all but impossible," said Terri Haines, founder of Pangaea Policy in a recent email to clients.

"Legally, it's unconstitutional. Monetary policy is Congress' job, not the president's. Neither Congress nor the courts are going to enable or encourage any president flouting clear constitutional responsibilities," he said.

On a practical and political level, the candidate and former president likely and pretty quickly disclaims any desire to kneecap the Fed," Haines added.

Asked why the Fed has not done a report on how inflation managed to rise above 7% during the pandemic even as the Fed had a 2% target, Williams said the U.S. central bank wanted to get inflation back to target prior to discussing the lessons to be learned by the episode.

-Greg Robb

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05-04-24 0701ET

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