Podcast Summary: The Indicator from Planet Money Episode Title: Can the Federal Reserve Stay Independent? Host: Waylon Wong & Darian Woods Release Date: March 4, 2025

Introduction

In this episode of The Indicator from Planet Money, hosts Waylon Wong and Darian Woods delve into the implications of recent executive orders signed by President Trump, specifically focusing on the future independence of the Federal Reserve and the ambitious cost-cutting measures spearheaded by Doge. The discussion underscores the delicate balance between governmental oversight and the autonomy of key financial institutions.

Executive Orders and Federal Reserve Independence

Waylon Wong opens the conversation by highlighting President Trump's prolific signing of executive orders, noting, "That's more than any president this early in their term" (00:15). The focus narrows to two pivotal orders impacting the economy:

1. Federal Reserve Oversight: Trump’s executive order aims to tighten control over how agencies, including the Federal Reserve, spend and regulate. However, it explicitly excludes the Fed's role in monetary policy—specifically, the raising and lowering of interest rates to combat inflation and protect jobs.

2. Cost-Cutting Measures by Doge: The discussion transitions to Doge’s aggressive attempts to reduce federal spending, which, according to the hosts, are unlikely to significantly impact the overall federal budget.

Analysis of Federal Reserve’s Dual Roles

Waylon Wong outlines the Federal Reserve's two primary responsibilities:

• Monetary Policy: Managing the money supply to balance inflation and unemployment (02:05).
• Bank Regulation: Supervising and ensuring the stability of the financial system (02:21).

These functions are traditionally performed independently of political influence, maintaining the Fed's autonomy from the legislative and executive branches.

Implications of the Executive Order on the Fed

Darian Woods elaborates on the executive order, explaining that while it targets the Fed’s regulatory functions, it preserves its monetary policy independence. Catherine Judge, a law professor at Columbia University, provides insight, stating, "There is an effort to signal, look, we don't want to mess with monetary policy, so it seeks to provide a little bit of calm and status quo maintenance" (03:11).

Judge further emphasizes the risks of diminishing the Fed's independence, noting, "Trump doesn't want to stoke fears that we're going to have persistent inflation by changing the leadership structure of the Fed or his control over the Fed in ways that would give him the ability to dictate interest rates" (03:30).

Research supports the notion that less independent central banks are prone to higher inflation rates, underscoring the importance of the Fed's autonomy in monetary decisions.

Potential Challenges and Questions

The executive order raises critical questions about the practical division of responsibilities:

• Intervention in Financial Crises: How will the Fed’s ability to act swiftly during financial downturns, such as the 2023 Silicon Valley Bank troubles, be affected? Darian Woods asks, "Would those decisions now be subject to White House review?" (04:05).

• Maintaining Credibility: Catherine Judge warns, "So the core challenge is you have these individuals who are playing multiple rules, and how credible is it that they are going to maintain independence on one front and not others?" (04:30).

The tension between political oversight and institutional independence has been evident since Trump's election, with increasing scrutiny over Fed Chair Jerome Powell’s decisions. Powell has reaffirmed his commitment to maintaining the Fed's autonomy, stating, "What we're going to do at the Fed is keep our heads down and keep working" (05:09).

Cost-Cutting Efforts by Doge

Parallel to the Fed's oversight, the episode examines Doge’s efforts to reduce federal spending:

• Ambitious Goals: Doge aims to trim at least $1 trillion from the federal budget, a target that far exceeds the verified savings of just over $2 billion (07:26).

• Implementation Challenges: Missteps have already occurred, such as the erroneous firing and rehiring of critical employees at the FDA and the National Nuclear Security Administration (06:59).

Jessica Riedel from the Manhattan Institute critiques Doge’s approach, comparing it to an irresponsible spender: "I'm a fiscal conservative... but it has to be done well and competently" (07:16). She highlights that the majority of federal spending—75%—is allocated to entrenched programs like Social Security, Medicare, Medicaid, Defense, veterans, and interest, leaving little room for impactful cuts.

Political and Legislative Hurdles

While Congress holds the power of the purse, the Trump administration’s executive actions challenge this traditional dynamic. Despite Republican control aligning with Doge’s cutback initiatives, Jessica Riedel points out the improbability of significant deficit reduction without addressing major entitlement programs: "Most of that has been taken off the table by Trump and Republicans, and they're not going to be able to really do much on the deficit until they do hit those programs" (08:20).

Moreover, proposals like extending Trump's 2017 tax cuts, which include substantial Medicaid reductions, are projected to increase the deficit by approximately $350 billion annually, according to Riedel (08:54).

Legality and Future Prospects

The legality of Doge’s sweeping spending cuts remains uncertain. Historically, Congress has regulated federal budgets, but the Trump administration’s challenges to this process introduce potential legal conflicts. Moreover, with Fed Chair Jerome Powell’s term expiring next year, any shift in monetary policy direction by the administration would likely coincide with new leadership (05:56).

Elon Musk, representing Doge, defends the agency’s actions on Joe Rogan's podcast, emphasizing accountability and prompt corrective measures: "If Doge makes a mistake, they would quickly fix it. But he said they need to act fast to, quote, stop wasting billions of dollars of taxpayer money" (09:06).

Conclusion

The episode underscores a pivotal moment for the Federal Reserve’s independence amidst presidential executive orders and aggressive federal spending cuts by Doge. While monetary policy remains insulated, regulatory oversight and large-scale budget reductions present significant challenges that could reshape the financial landscape. The interplay between political intent and institutional autonomy will be crucial in determining the effectiveness and credibility of these measures moving forward.

Notable Quotes:

• Waylon Wong: "That's more than any president this early in their term." (00:15)
• Catherine Judge: "Trump doesn't want to stoke fears that we're going to have persistent inflation by changing the leadership structure of the Fed or his control over the Fed in ways that would give him the ability to dictate interest rates." (03:30)
• Jerome Powell: "What we're going to do at the Fed is keep our heads down and keep working." (05:09)
• Jessica Riedel: "Most of that has been taken off the table by Trump and Republicans, and they're not going to be able to really do much on the deficit until they do hit those programs." (08:20)

Timestamp References:

• Clickable links (e.g., 00:15) are placeholders and should link to the respective timestamps within the podcast player.