In this report, we turn to what Donald Trump’s victory in concert with GOP Congressional dominance mean for the FRB as an institution and driver of U.S. monetary and regulatory policy. FRB dominance on all fronts is under unprecedented threat, one that will not be averted with any new concessions the FRB has so far been unwilling to make on matters such as Reserve Bank structure. In October, Karen Petrou described FRB plans to expand its balance sheet to stimulate a “high-pressure” economy, actions the FRB would likely have taken in concert with moving from IOER to the RRP as a floor under short-term rates. GOP opposition to a still larger FRB balance-sheet is unilateral and, except for a low-probability chance of taking a role in infrastructure finance, the FRB’s monetary policy will now move from cautious normalization to a more radical realignment. The income-inequality agenda the FRB would have addressed in a Clinton Administration is off the table, but only in a rhetorical sense. President-Elect Trump appears very focused on what he calls economic opportunity for moderate-income households, a focus that will put strong political pressure on central-bank interest rate, portfolio, and regulatory policy. Chair Hensarling (R-TX) last week reiterated that FRB reform is a top priority, starting with the House-passed reform bill (see FSM Report FEDERALRESERVE26). This bill makes many changes, most notably forcing formulaic rate-setting and broader GAO audits. In this report, we assess also how this legislation is likely to advance in the next Congress.
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