St. Louis Fed leaders reiterate the importance of the bank's independence

The current president of the Federal Reserve Bank of St Louis and two former presidents said Monday it is crucial for the country’s central banking system to remain independent to best serve the country.

The country’s central banking system has been in the news as President Donald Trump has publicly pressured Federal Reserve leadership over interest rates. During Monday’s panel, speakers discussed the system’s transparency, misconceptions about the bank and future challenges.

Recently, Trump has targeted the Federal Reserve, pushing leaders for more aggressive interest rate cuts. Trump fired Federal Reserve Governor Lisa Cook last month for allegedly committing mortgage fraud in 2021. Cook swiftly sued Trump over her removal. And on Saturday Trump posted a cartoon of himself firing current Federal Reserve Chairman Jerome Powell.

Speakers at Monday’s event did not explicitly mention Trump by name, but acknowledged that the bank is experiencing heightened pressure right now. The three spoke at a forum held at Washington University’s Graham Chapel.

Although part of the United States government, the Federal Reserve is an independent agency that sets interest rates. Its board of governors is appointed by the U.S. president and approved by the U.S. Senate.

The country’s system of 12 Federal Reserve banks are a cornerstone of independence, President of the Federal Reserve Bank of St. Louis Alberto Musalem said Monday during the panel discussion. Musalem told attendees that it is important to have such a system for a country as large and complex as the United States.

“Monetary policy affects every American all over the country, and having reserve banks that span the country and are in constant contact with the people they serve means that the voices of those people are represented at the monetary policy table,” Musalem said.

Thomas Melzer, former president of the Federal Reserve Bank of St. Louis, said that there was a lot of pressure from Congress when he was leading the bank in the 1990s, but the pressure from today’s administration is different.

“(President) Bill Clinton had a big, public megaphone and he chose to use it, and one would have thought maybe he would use it to get the monetary policy he wanted,” Melzer said. “He never did, because (then U.S. Secretary of the Treasury Robert) Rubin told him, ‘You’re only going to hurt yourself if you speak publicly about it.’”

Former President of the Federal Reserve Bank of St. Louis James Bullard added that although the system is independent, it is not entirely divorced from politics given that the Board of Governors is made up of political appointees. And there is a role for politics, because financial markets and political decisions affect each other, he said.

“You’re trying to keep the process of making these important monetary policy decisions at arm’s length from the day-to-day machinations of inside the beltway Washington,” Bullard said. “But you still want some political influence over the interest rate policy, because it’s an important policy, and it is a democracy.”

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