Fed Independence Debate Ignited by Milan Appointment

Milan's Appointment Fuels Debate on Fed Independence

Hours after Stephen Miran was sworn in as a member of the Federal Reserve Board of Governors, Senate Democrats introduced a bill on Tuesday aimed at more clearly delineating the line between the White House and the central bank. This move comes amid growing concerns about the central bank's autonomy.

Details of the Proposed Bill

The bill, introduced by Senator Ruben Gallego of Arizona and co-sponsored by several Democratic senators, would prohibit Fed officials from simultaneously holding another presidentially-appointed position. The ban includes even those who are on leave from another post, as is the case with Miran, who previously served as chair of the White House Council of Economic Advisers.

An Unprecedented Situation

Miran is the first person in modern Fed history (spanning roughly 90 years) to decline resigning from his White House post while serving on the Fed board. The 14-year terms of Fed governors, protected from arbitrary dismissal, are designed to insulate the central bank from political pressures.

Future Expectations for Milan's Position

Miran's term on the Fed board is scheduled to end next January. He is filling the unexpired term of Adriana Kugler, who resigned from the board in August. However, Miran could remain in the post indefinitely if President Trump does not nominate a successor.

Uncertainty Regarding Resignation

In response to written inquiries from Senator Elizabeth Warren of Massachusetts last week, Miran did not explicitly state whether he would resign from his White House post if he continued to serve as a Fed governor after January. However, he had previously pledged to resign from his White House role if he were formally nominated for a longer term on the Fed board.

Senator Gallego's Statements

"An independent Fed, free from political whims, is the cornerstone of our monetary policy," Gallego said in a statement. "Mr. Miran has been given ample opportunity to do the right thing – resign from his White House position – but he has refused."

Difficulty in Passing the Bill

The bill is unlikely to become law, as it would require passage by the Republican-controlled Congress and Trump's signature.

Senate Vote and Expectations for Interest Rate Cuts

Late on Monday, Miran was confirmed by the Senate in a 48-47 vote (with voting largely along party lines) to become the newest member of the Federal Reserve Board. He was quickly sworn in and joined the Fed's monetary policy meeting which commenced Tuesday morning EST. The 12-member policy committee is widely expected to vote in favor of the first interest rate cut of the year at the conclusion of Wednesday's meeting.

Investor Monitoring of Milan's Decision

Investors are closely watching whether Miran will support Trump's call for a larger interest rate cut at this meeting, where markets widely expect a cut of at least 25 basis points. Trump had written on social media on Monday that Fed Chairman Powell "must cut rates now, and by more than he was planning to do originally."

Analysis of the Impact of Interest Rate Cuts (For informational purposes only)

Lowering interest rates can stimulate the economy by encouraging borrowing and investment, but it can also lead to higher inflation. It's important for the Fed to balance these factors when making its decisions.