Speaker Johnson and the Fed’s “Constitutional Authority”
“Probably some need to reform,” House leader says in new interview
The Speaker of the House, Mike Johnson, says in a new interview with Bloomberg that he’s open to changing the Federal Reserve after careful study.
Bloomberg reports that Johnson “signaled he’s open to modifying the Federal Reserve Act, the 1913 law that established the central banking system.”
Bloomberg reports:
“I’m not even sure where the original constitutional authority is for the Fed,” said Johnson, who made a career as a constitutional lawyer before arriving in Congress. “There is probably some need to reform, but we would have to study that very carefully before Congress got involved in anyway to the extent we have jurisdiction over it. You would not want to do it in a reckless manner.”
It’s encouraging to see the attention to the Fed’s constitutional status spreading from The Editors and our friends at the New York Sun all the way to the Speaker of the House.
We’ve been writing about this topic here for some time, to the dismay of some highly sophisticated readers and to the delight of some others. (There are no unsophisticated readers of The Editors.) For those who are new or who have not been paying close attention on this topic, a quick review:
July 17, 2025, “Instead of Firing Powell, Trump Could Add New Fed Governors,” we wrote, “we went over the Constitution with a magnifying glass and then with a microscope and couldn’t find an independent Fed anywhere in it.” (I used a version of that line yesterday morning on Fox Business’s “Mornings With Maria” show.)
July 15, 2025, “Calls Mount in Congress for Fed Chairman’s Ouster,” we wrote, “People can debate whether President Trump has the power to fire Powell, but for sure a congressional majority has the power to restructure the Federal Reserve. The Constitution gives the monetary power to Congress, and Congress created the Fed. …Congress has delegated its tariff or taxing power to Trump and its monetary policy power to the Fed. People are not big fans necessarily of Schumer and Pelosi or of Speakers Boehner, Hastert and Livingston or the other congressional leaders, but one reason Trump has been successful politically is that he is taking a maximalist view of his power rather than a minimalist view. Imagine if Congress took a similar approach, took its power back, and wielded it rather than letting others use it.”
July 14, 2025, “Even Another Month With No Inflation May Not Move Powell,” we wrote, “Senator Scott, at least, is living up to his responsibilities in Article I, which gives Congress the power to coin money and regulate its value. So is Rep. Ritchie Torres. The more of their colleagues weigh in, the greater the likelihood that the inflation data won’t be seen as the latest episode in a Trump-Powell psychodrama but rather a step toward Congress reasserting its constitutional role in monetary policy.”
June 11, 2025, “The Fed Beyond Bessent,” we wrote, “Trump is correct to sense that the Fed could use some shaking up. It was slow to act against Bidenflation, and its vaunted “independence” has become a way of evading constitutional accountability. Change, though, will require a team effort, perhaps including Congress, which the Constitution gives the power to coin money and regulate the value of. Perhaps in their inspired genius the framers of the Constitution made that choice because the Congress is a branch with members who face voters every two years and who at least in theory, risk being replaced over either inflation or high unemployment. Change will require thinking beyond Bessent, beyond a new Fed chairman, and toward reinvigorating the intellectual energy and viewpoint diversity of the Fed itself, including more emphasis on the regional banks, which used to be interesting and have in recent years become more uniform. It is more than just a one-person job.”
May 5, 2025, in “Trump Calls for Fed to Cut as New Paper Highlights Role of Regional Reserve Banks,” we wrote, “It’s nice to see this conversation stirring in the White House and in academic economics. The real action will come when it spreads to Congress, which the Constitution gives the power to coin and regulate the value of money….When it comes to Fed policy, everyone is for technocracy rather than democracy so you don’t wind up with Latin America or Weimar Germany style inflation where you have to push your money around in a wheelbarrow. But as Volcker eventually conceded by taking the actions the politicians were recommending, there is no ‘independence’ in the system established by our founders.”
April 22, 2025, in “Groupthink Sets in at Powell’s Federal Reserve,” we wrote, “It’d be a fertile topic for consideration and perhaps even some adjustments by Congress. It is Congress, after all, that created the Fed with legislation. And it is Congress to which the Constitution grants the enumerated power to coin money and regulate the value thereof.”
Some people will perceive Johnson’s comment as Trump-style political meddling with monetary policy. But the Fed has been plenty political itself. People still recall when, in 2019, the former Vice Chair of the Fed, William Dudley, wrote that the Fed should consider acting to oppose Trump on the grounds that “Trump’s reelection arguably presents a threat to the U.S. and global economy.” Dudley said then, “Officials could state explicitly that the central bank won’t bail out an administration that keeps making bad choices on trade policy, making it abundantly clear that Trump will own the consequences of his actions.” Today’s Fed appears to be following Bill Dudley’s advice.
Really what this is about is less politics and more principle, the principle that intellectually diverse viewpoints lead to better decisions. It’s not just President Trump or The Editors that see an issue. Here are some of the other people, how Johnson might help, and how it affects Americans:
Our articles here have quoted the former president of the Richmond Fed, Jeffrey Lacker; an economics professor at Brown, Gauti Eggertsson; a former Fed reporter for Bloomberg, Noam Neusner; a former Fed Vice Chair, Don Kohn; and a variety of other economists, including Christina Parajon Skinner of Wharton and Carola Binder of the University of Texas at Austin and Michael Bordo of Rutgers and Edward S. Prescott of the Federal Reserve Bank of Cleveland. That’s not to say that they are all on board prospectively for whatever Congress may do. But if Speaker Johnson wants to study the issue, “very carefully,” those are some of the people who might be worth talking to and potentially inviting to testify, along with Jim Grant of Grant’s Interest Rate Observer and Seth Lipsky of the New York Sun and Ed Yardeni of Yardeni Research and the Calafia Beach Pundit, Scott Grannis. I’m happy to help however I can.
Monetary policy may seem obscure, but ordinary American pay for it in terms of borrowing costs for the federal government, mortgage rates, or inflation when there is any.
One of the messages of the 2024 election is that voters were interested in points of view beyond the Beltway “expert” class, whether the issue was immigration, trade, or Covid lockdowns. “Too late” Powell and the rest of the Fed burned a lot of credibility by being too late to fight Bidenflation. Then they burned more of it with a $2.5 billion headquarters renovation and what looked like a political timing of rate cuts that ended suspiciously and abruptly when Trump was inaugurated.
Perhaps some public scrutiny and some structural reforms such as additional Fed governors or letting state governors appoint the regional bank presidents, and giving the regional bank presidents more voting power, could help. The framers of the Constitution were wise when it came to public accountability, checks and balances, and enumerated powers. It’s hard to imagine they’d have embraced an unaccountable, secretive vast bureaucracy that Secretary Bessent described recently with wry humor as “universal basic income for academic economists.” So some careful, non-reckless review of the Fed, with the Constitution as a guidepost, is a welcome development. Johnson is playing a constructive and grownup role here, just as he has done on Israel’s war and Ukraine’s war and as he did on One Big Beautiful Bill.
Powell’s defenders are constantly warning that an attack on Fed monetary policy independence will prompt a market panic and Latin America-style inflation, but the stock market was not spooked by the speaker’s interview. A monetary policy without any political feedback mechanism when it goes off the rails may not be so great for prosperity, either. The framers of the Constitution might not have been Ph.D. economists (neither is Jerome Powell, who is a lawyer), but they were geniuses.
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