Fed’s Musalem sidesteps Fed independence question

• Key Insight: Federal Reserve Bank of St. Louis President Alberto G. Musalem dodged answering whether the central bank’s autonomy could be in question.
• Expert Quote: “I think there is more awareness of the issue, and there’s more debate about the issue,” Fed’s Musalem said.
• What’s at stake: Musalem’s sidestepping of whether risks are emerging to the central bank’s autonomy comes as the Trump administration moves to reshape the Federal Open Market Committee and exerts indirect pressure on the Fed to lower interest rates.

Federal Reserve Bank of St. Louis President Alberto G. Musalem gave a wide berth to a question about whether the central bank’s independence is at risk, saying only that central bank independence is important and there is heightened attention to the issue.

Musalem, a member of the Federal Reserve’s interest-rate setting committee, was asked during an appearance at the Brookings Institution Monday whether he is concerned about the Fed’s ability to operate as an independent central bank. 

“It’s very important that monetary policy independence come hand-in-hand with accountability and transparency,” Musalem said, echoing sentiments he raised in a previous speech. “We are accountable to Congress, and through accountability to Congress, we’re accountable to the people we serve.”

When asked whether he thought the Fed’s independence is at risk, Musalem replied that “there is more awareness of the issue, and there’s more debate about the issue.”

Musalem’s tentative remarks come as the White House has been exerting uncommon pressure on the Fed to lower its interest rate trajectory significantly, prompting concerns about how much the central bank will be shielded from political pressure in the future.

President Trump posted a screenshot last month of a letter to Fed Gov. Lisa Cook informing her that her position on the Fed Board — which expires in 2038 — had been terminated over allegations of mortgage impropriety. Cook sued Trump, arguing that the president cannot remove a Fed governor for actions taken outside of their official capacity and that her purported removal bypassed her due process rights. A district and appeals court sided with Cook, allowing her to remain at her post pending the outcome of the case, which has already been appealed to the Supreme Court. 

At the same time, Trump nominated White House Council of Economic Advisers Chair Stephen Miran to serve a short, unexpired term on the Fed Board that expires in January, and the Senate moved with dispatch to confirm him ahead of last week’s FOMC meeting, which showed Miran’s monetary policy views diverged notably from his peers on the committee.

Musalem also said that he is open to casting a vote in the next Federal Open Market Committee meeting to cut rates by another 25 basis points, if there is data that supports the reduction. Fed’s rate cutting committee is set to meet Oct. 28-29. 

“Should further signs of labor market weakness emerge, I would support additional reductions in the policy rate, provided the risk of above target inflation persistence has not increased and long term inflation expectations remain anchored,” said Musalem.

A week prior, the FOMC moved to cut rates by 25 basis points, citing the reduction as “precautionary” to prevent the deterioration of the labor market. 

The most recent vote was watched closely for signs of whether a President Donald Trump-appointed voting bloc would emerge among committee members, pressuring interest rates lower. That, however, did not materialize.

Newly appointed Fed Gov. Stephan Miran was the only Trump-appointed member to dissent on the 25-basis-point interest rate cut, instead calling for a 50-basis-point reduction. The remaining 11 members, including Trump-appointed governors Christopher Waller and Michelle Bowman, supported the quarter-point cut.Addressing the FOMC vote, Fed Chair Jerome Powell said during a press conference that there was a “high degree of unity” among committee members.