Press Clips

The Fed’s New “Gain-of-Function” Monetary Policy By Scott Bessent Overuse of nonstandard policies, mission creep, and institutional bloat are threatening the central bank’s monetary independence....In her book Engine of Inequality: The Fed and the Future of Wealth in America (2021), progressive financial policy expert Karen Petrou documents how the Fed’s pursuit of a “wealth effect” to stimulate the economy backfired. “Unprecedented inequality,” wrote Petrou, “is clear proof that the wealth effect is all too effective for the wealthy, but an accelerant to economic hardship for everyone else.” Economists’ focus on the supposed benefits of the wealth effect is particularly odd given that the Fed’s asset purchases act more powerfully on the discount rate at which assets are valued than the stream of cash flows that underpins the asset’s price. Asset owners are less likely to bring forward consumption as a result of changes in the discount rate than income growth, [...]

The Fed's 'Gain of Function' Monetary Policy By Scott Bessent As we saw during the Covid pandemic, lab-created experiments can wreak havoc when they escape their confines. Once released, they can’t easily be put back. The “extraordinary” monetary-policy tools unleashed after the 2008 financial crisis have similarly transformed the Federal Reserve’s policy regime, with unpredictable consequences. The Fed’s new operating model is effectively a gain-of-function monetary policy experiment. Overuse of nonstandard policies, mission creep and institutional bloat threaten the central bank’s independence. The Fed must change course. Its standard tool kit has become too complex to manage, with uncertain theoretical underpinnings. Simple and measurable tools, aimed at a narrow mandate, are the clearest way to deliver better outcomes and safeguard central-bank independence over time....By failing to deliver on its inflation mandate, the Fed allowed class and generational disparities to widen. Its pursuit of a wealth effect to stimulate growth backfired. “Unprecedented [...]

Trump wants to shake up the Fed. Stephen Miran has a playbook By Sam Sutton White House economic adviser Stephen Miran is one of Donald Trump’s chief strategists for scaling back the Federal Reserve’s autonomy. The president is giving him a shot at disrupting the central bank from the inside. The Harvard-trained economist, tapped by Trump for a Fed board seat, has proposed measures that would allow the president to fire Fed governors at will. He wants to end the inflation targeting that anchors expectations for prices and has slammed the “wildly inappropriate” purchases of Treasury debt during economic expansions....“Miran would have little difficulty reflecting the president’s views,” said Karen Petrou, the managing partner of Federal Financial Analytics. The proposals he has crafted would create “a far more political central bank.” Critics of Trump’s moves are concerned that a more political Fed would make interest rate decisions based on near-term [...]

Trump, Pulte weaponizing housing finance for political ends, experts say By Andrea Riquire The announcement from President Donald Trump on Aug. 25 that he was firing Federal Reserve governor Lisa Cook amounts to an extraordinary weaponization of the housing finance system that depends on private, deeply personal data from millions of Americans, experts said the following day. In a post on Truth Social, Trump claimed "sufficient cause" to remove Cook immediately, pointing to accusations that she had made false statements on mortgage applications, and bringing the president one step closer to shaping the balance of the Fed's seven-member board in his favor, as he’s attempted to do for months. That step "is nothing more than one person’s inference from documents," said Karen Petrou, co-founder of Federal Financial Analytics, Inc., and long-time Fed-watcher. "It’s not what the law calls sufficient cause suitable for firing a Federal Reserve governor. It’s just an assault on the independence [...]

"The president has just made us a higher-risk country" Host David Brancaccio talks with Karen Petrou at Federal Financial Analytics after President Donald Trump moved to fire Federal Reserve Governor Lisa Cook last evening. That's Petrou's conclusion "The president has just made us a higher-risk country" https://www.marketplace.org/episode/2025/08/26/the-president-has-just-made-us-a-higherrisk-country

Why the U.S. dollar is under threat as the world's reserve currency Host David Brancaccio talks with Federal Financial Analytics' managing partner, Karen Petrou about US Dollar and Reserve Currency https://www.marketplace.org/story/2025/08/19/threats-to-the-us-dollar-as-the-the-worlds-reserve-currency  

The trouble with Fannie and Freddie By Sam Sutton President Donald Trump wants to sell shares in Fannie Mae and Freddie Mac. And if you believe his Truth Social account, he wants to get a deal done before the end of the year. The structure of a Trump-led initial public offering of the housing-finance giants would be enormously consequential to a $9 trillion market for mortgage-backed securities that helps limit costs for American home buyers. And while an IPO could represent a major step toward ending Fannie and Freddie’s 17-year-old federal conservatorship, pulling it off will force the White House to figure out how to make the companies attractive assets for Wall Street without jeopardizing arrangements that are critical to the mortgage market. “It’s a tricky, tricky balancing act,” said Karen Petrou, the managing partner of Federal Financial Analytics. The administration’s plans for the offering are still hazy, but The WSJ’s initial reporting [...]

US Regulators to Play Key Role in Next Crypto, Bank Fight By Yash Roy A major battle between crypto firms and traditional lenders over interest and bank charter applications is poised to be decided by regulators appointed by President Donald Trump, who has been a vocal supporter of digital currencies. ...“This is an industry that doesn’t think it needs to wait for rules, unlike the banking industry,” said Karen Shaw Petrou, a managing partner of Federal Financial Analytics, where she analyzes financial firms, including lenders. “Stablecoin issuers just go for it and that’s going to unsettle the banks more than probably anything.”..Recently, Circle announced a partnership with Binance for an off-exchange collateral where customers can park their money when they are not making a payment. The largest US crypto exchange, Coinbase, already offers a rewards program for certain consumers, which some in the banking industry argue could potentially be illegal [...]

How Long Can the Fed’s Independence Last? By Joe Nocera As the Federal Reserve board was meeting on Tuesday to make its latest decision about interest rates—amid President Donald Trump’s continuing agitation for them to be lowered—I got on the phone with several of Fed chairman Jerome Powell’s most cogent critics. Critics like Karen Petrou, the highly respected cofounder of the bank advisory firm Federal Financial Analytics, who has long argued that the policies of Powell and his predecessors, Janet Yellen and Ben Bernanke, dramatically increased income inequality. Critics like Mohamed El-Erian, the well-known economist, former CEO of bond investing giant Pimco, and now president of Queens’ College, Cambridge, who warned before just about anyone that Powell was sowing the seeds of inflation by keeping interest rates too low early in his tenure. Critics like Christopher Leonard, whose book The Lords of Easy Money makes the case that the huge bond-buying [...]

The stablecoin bill is now law. What's next for banks? By   Claire Williams WASHINGTON — Now that President Donald Trump has signed the stablecoin bill into law, banks are gearing up to lobby regulators as they make rules that could either further threaten or protect banks' traditional turf. The stablecoin bill poses both an existential threat and opportunity for bankers, experts say...."The issues on which we're more focused with our banking clients are really the rules that will be forthcoming about how the nonbank issuers can engage on stablecoin," said Karen Petrou, co-founder of Federal Financial Analytics. "There certainly is the question of the extent to which a bank holding company or an insurance or subsidiary of an IDI could engage in stablecoins. But the bigger issue from most of our clients is what the marketplace is likely to look like and who's coming at them." The Fed is [...]