Cato Statement on Reported Powell Investigation 

Fed Chair Powell is under federal criminal investigation related to his testimony on the renovation costs of the Fed’s headquarters. Chair Powell claims this probe is a result of the Fed setting the interest rate target against the President’s wishes.

If Chair Powell is correct, it is a serious violation of the Fed’s ability to conduct independent monetary policy. Historical episodes of executive interference with monetary policy always lead to bad economic outcomes like high inflation.

Regardless, this episode demonstrates that our current system of setting the federal funds rate target is too arbitrary and discretionary. It leaves too much scope for subjectivity and thereby invites criticism from politicians seeking a scapegoat. It is imperative that we instill objective, rules-based, monetary policy to both improve economic outcomes and shield the Fed’s independence.