Trump Allies Push Bill to Abolish Legal Protections for Federal Reserve Board

There have been many bold proposals in the Capitol’s marble halls over the years, but few are as significant as what Senator Mike Lee and Representative Thomas Massie recently unveiled. The Federal Reserve Board Abolition Act is not merely another symbolic piece of legislation that will be buried in committee. It is a direct attack on an organization that has been at the heart of the American economy for over a century.

There is an almost intentional sense of permanence when strolling through the Eccles Building on Constitution Avenue, where the Federal Reserve’s board convenes behind closed doors. Stability is suggested by the architecture. The security implies significance. However, lawmakers are writing the institution’s possible obituary while seated in congressional offices a few miles away.

Lee doesn’t hold back when using language. He contends that the Federal Reserve has “overstepped” and “repeatedly failed,” turning into a “economic manipulator” instead of the stabilizing force for which it was intended. It’s difficult to ignore the timing. Even though rates have decreased from their pandemic peaks, millions of Americans are still troubled by inflation. The cost of groceries still hurts. Paying a mortgage still hurts. Lee has selected his target—someone, somewhere, needs to be held responsible.

Massie attacks what he refers to as the Fed’s pandemic-era transgressions in his companion bill in the House. Because it was dramatic, the creation of “trillions of dollars out of thin air” sounds dramatic. During COVID-19, the Federal Reserve’s balance sheet grew to previously unheard-of heights, allowing for deficit spending that would have seemed unimaginable in any other period. Depending on who you ask, it may have prevented economic disaster or contributed to the subsequent inflation. Economists are still at odds. Less so with politicians.

The bill would dissolve the Federal Reserve’s nationwide network of banks in addition to the Board of Governors. These regional organizations would disappear from Boston to San Francisco. The Federal Reserve Act of 1913, which Woodrow Wilson signed in a very different America, would be completely repealed. It’s unclear what will take its place. Lee’s legislation specifies what ends but says nothing about what starts.

This move is part of a larger effort by Donald Trump and his supporters to weaken or change the Fed’s independence. The Supreme Court heard Trump’s recent attempt to remove Fed Governor Lisa Cook, and justices of all political persuasions voiced disapproval of the president meddling in central bank affairs. There is more to the idea of a Fed free from political pressure than just custom. It is purposefully incorporated into the institution’s legal structure.

Not in a happy way, Stephen Miran’s confirmation to the Fed’s board earlier this year set a new precedent. A sitting member of the executive branch would concurrently serve on the board of the central bank for the first time in the history of the modern Fed. Instead of quitting his White House job, Miran took an unpaid leave of absence, which raised concerns about his true allegiances. He called the Fed’s independence “critical” and promised to protect it during his confirmation hearing. Contrary to what his dual role suggests.

Another aspect of this story is revealed by Cook’s legal battle. She is a reputable economist with degrees from Stanford and Harvard who was appointed by Joe Biden, making her the first Black woman to hold a position on the Fed’s board. Trump’s attempt to remove her was based on unverified claims of mortgage fraud. Judges at the federal level have not been convinced. If she is able to maintain her position despite the upcoming political and legal unrest, her term will end in 2038.

It’s hard to ignore the tension in this situation. The Federal Reserve was established specifically to keep monetary policy independent of the political currents that sweep through Washington every few years. Although the concept of central bank independence was not created in the United States, it has proven remarkably resilient. Higher rates of inflation and less stable currencies are common in nations with politically controlled central banks. Recent cautionary tales come from Argentina and Turkey.

Trump’s calls for rate cuts on social media don’t sound like recommendations. They read like directives. He recently wrote, “MUST CUT INTEREST RATES, NOW,” promising that housing would “SOAR” if Powell complied. Powell, for his part, has insisted that economic data, not presidential preferences, determine Fed decisions. As political pressure mounts, maintaining that position is getting more difficult.

Lee and Massie’s proposed legislation is unlikely to be passed anytime soon. Even many Republicans are skeptical about dismantling an organization so deeply ingrained in the global financial system, and Democrats have enough votes to block it. However, the introduction of the bill accomplishes another goal. It modifies what constitutes appropriate discourse. What was once thought to be radical is now feasible.

Any major American city’s financial district will have buildings housing Fed-supervised banks, traders who watch Fed announcements like gospel, and companies making investment plans based on Fed rate forecasts. The institution’s influence goes well beyond those who are aware of it. It would take more than a change in policy to dismantle it. An earthquake would occur.

It’s unclear if Lee and Massie genuinely think abolition is possible or if they’re just laying the groundwork for future negotiations over Fed reform. Political theater frequently accomplishes several goals at once. However, the very existence of such a bill, supported by well-known Trump supporters, shows how drastically things have changed for the Fed.

Jerome Powell will serve as chair until 2026. Trump might have chosen enough governors by then to drastically alter the makeup and ideology of the board. The Federal Reserve may continue to exist in name but transform into something quite different in reality. Observers of central banks are more concerned about that possibility than they are about outright abolition, which at least has clear political challenges.

There have been many institutional conflicts in the history of the American economy. Courts, Congress, and whether enough people believe that central bank independence is more important than quick political wins will all play a role in what happens to the Fed in the future. The argument is still going on outside the Eccles Building. For now, the work continues inside.