The Indicator from Planet Money - Can the Federal Reserve stay independent?

Episode Date: March 4, 2025

President Trump has been on an executive order-signing spree since returning to office, with 76 so far. Today we look at two of them. Can the Fed really split up independent and non-independent roles? And what does DOGE's cost-cutting streak add up to? Related episodes: Slender Starbucks, Medicaid at risk, and the gold card visa (Apple / Spotify) What happens with billions in research funding goes away (Apple / Spotify) Should presidents have more say over interest rates? (Apple / Spotify) For sponsor-free episodes of The Indicator from Planet Money, subscribe to Planet Money+ via Apple Podcasts or at plus.npr.org. Fact-checking by Sierra Juarez. Music by Drop Electric. Find us: TikTok, Instagram, Facebook, Newsletter. See pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences.NPR Privacy Policy

NPR. This is the indicator from Planet Money. I'm Waylon Wong. And I'm Darien Woods. Okay, here is an indicator for you, Darian. 76. That's how many executive orders, as of this recording, President Trump has signed so far.

That is more than any president this early in their term. He has been spilling the presidential ink. And as we know, many of these orders will be tied up in court for the foreseeable future. But we want to focus on two of the presidential. these executive orders as they relate to the economy. Today on the show, what an executive order means for the future independence of the Federal Reserve. And why the Doge cost-cutting spree is not likely to make much of a dent in federal spending. That's coming up after the break. The Federal Reserve has two main jobs. The first one is what we hear about most of the time.

Making sure the amount of money flowing through the economy is just right. Making sure there's not too much inflation or unemployment. That's what Wong's call monetary policy. The other main job is keeping banks running smoothly. And it does this by regulating and supervising the financial system. Both of these jobs are done at arm's length from Congress or the president. You know, the Fed is independent. Trump signed an executive order in mid-February to make sure agencies follow the president's priorities. It put tighter control on how these agencies spend and regulate. And it applied to agencies like the Securities and Exchange Commission, the Federal Trade Commission, and the Federal Reserve. Now, there's one big asterisk here. The executive

order says it only applies to the Federal Reserve's role in safeguarding the financial system. It doesn't apply to the Fed's raising and lowering of interest rates to fight inflation and protect jobs, you know, monetary policy. Catherine Judge is a law professor at Columbia University. There is an effort to signal, look, we don't want to mess with. monetary policy. So it seeks to provide a little bit of calm and status quo maintenance. Catherine says it's widely accepted that less independent central banks end up with higher inflation. Research backs this up. Trump doesn't want to stoke fears that we're going to have persistent inflation by changing

the leadership structure of the Fed or his control over the Fed in ways that would give him the ability to to dictate interest rates. The evidence is less clear about the effects of having the Fed's bank supervision and regulation role under the grip of politicians. And so it makes sense that President Trump specifically carved out the Fed's monetary policy as staying independent. But the big question is how this division would work in practice. It also raises questions over how the Fed might intervene when something goes wrong.

For example, when Silicon Valley Bank ran into financial trouble in 20, 23, the Fed stepped in to lend it money. Would those decisions now be subject to White House review? Catherine says the problem with this approach is if the White House begins to meddle in some functions at the Fed, it would undermine other decisions made by the individuals at the Fed. So the core challenge is you have these individuals who are playing multiple rules and how credible is it that they're going to maintain independence on one front and not others. This tension has been apparent since the election of Donald Trump. The president said in January the Fed was doing a terrible job on banking regulations.

The Fed's top bank enforcer Michael Barr has also stuck down. And at the same time, Fed Chair Jerome Powell has been fielding more questions lately over whether his decisions on interest rates will be influenced by Trump or, for that matter, Elon Musk. Here's what Powell told a House committee last month about potential executive branch interference. What we're going to do at the Fed is, keep our heads down and keep working, wait to see what new policies emerge, and try to make a thoughtful, sensible set of policies on our part once we understand the implications of those. Classic pal, keeping his head down, doing the work.

Please don't bother me. I would not expect anything less from him. You know, we reached out to the White House to ask how this division would be managed. According to a senior administration official, the Office of Management and Budget will oversee all the Fed's regulations not related to monetary policy. We also asked if it could erode the credibility of the Fed's decisions to raise or lower interest rates. The same statement said no, and to quote, include that accusation in your story would not be accurately reporting the executive order. Jerome Powell's term as chair expires next year. So if Trump wants to go in a different direction

on monetary policy, that would be his earliest opportunity. The next executive order, we've been talking about this one a loss on the indicator recently is Doge. Trump signed this executive order on his first day in office. The Department of Government Efficiency, which, as we need to keep reminding people, is not actually a department. The order says Doge will quote, modernize federal technology and software to maximize government efficiency and productivity. And as we've seen over the last couple of weeks, that is translated into a lot of federal workers losing their jobs. This is the chainsaw for bureaucracy. That's Elon Musk heard here brandishing a chainsaw at CPAC,

the annual conference that draws conservative activists and officials. Musk, of course, is Doge's de facto leader. He's appeared in front of Trump's cabinet to explain his cost-cutting efforts. And estimates vary, but more than 30,000 federal employees have been laid off so far. Doge has also mistakenly fired, then rehired critical employees at the Food and Drug Administration. and the National Nuclear Security Administration. Jessica Reedle is with the Center Right Manhattan Institute and has been writing about budgets and spending for over two decades.

I'm a fiscal conservative. I have written 600 reports on how to cut spending over the past quarter century. But it has to be done well incompetently. Jessica says that has not been the case with Doge. Musk has made a goal of trying to trim at least $1 trillion from the budget that regularly runs into the red. Right now, Doge's official website claims they've saved just over $100 billion. But NPR reported it could only verify a little over $2 billion in savings.

So it's early days, yes, but there is still $998 billion to go. Jessica says the bulk of the government's $6.7 trillion in annual spending isn't even being scrutinized by Doge. 75% of all federal spending goes to six programs. Social Security, Medicare, Medicaid, Defense, veterans, and interest. And by interest, she means the cost of borrowing, which has also been rising for the government, came close to a trillion dollars last year.

Most of that has been taken off the table by Trump and Republicans, and they're not going to be able to really do much on the deficit until they do hit those programs. While Social Security and Medicare are politically almost untouchable, Congressional Republicans do appear to be going after at least one of these programs, and that is Medicaid, the health insurance program for low-income Americans and people with disabilities. Their latest proposal to extend Trump's 2017 tax cuts would likely include steep cuts to Medicaid, potentially leaving millions without health care. And even if these spending cuts do pass, Jessica estimates the Republicans bill, which includes tax cuts, will increase the deficit by an average. of about $350 billion a year.

I compared this to congressional Republicans as the irresponsible husband going to buy a $250,000 Ferrari and put it on the family credit card, and Doge is just the $2 off gas card he uses on the way there. The question is, can Doge actually do all this legally? Historically, Congress has had the power of the purse,

but the Trump administration is challenging this. Either way, the Republicans controlling Congress right now seem to be on board with the cutbacks. Still, Jessica says it will be hard to make those cuts. On Friday, Musk appeared on Joe Rogan's podcast to defend Doge's work against mounting criticism. Which of these sort of waste-slash-fraud things are wrong? Which line? Explain that line to the public.

They won't be able to. Both NPR and the New York Times have pointed to specific mistakes in Doge's accounting. For example, Doge claimed savings on a Coast Guard contract that ended in 2005 and a National Institutes of Health contract that's still active. For his part, Musk told Rogan that if Doge makes a mistake, they would quickly fix it. But he said they need to act fast to, quote, stop wasting billions of dollars of taxpayer money. This episode was produced by Julia Ritchie with engineering by Gilly Moon. It was fact-checked by Sierra Juarez. Kicking Cannon is our show's editor and The Indicator is a production of NPR.