The Federal Reserve - Controversy & Reform

The U.S. Federal Reserve System is unique in its structure with 12 regional banks and a Board of Governors appointed by the President.

It is a Central Bank created by the Federal Reserve Act, signed into law by President Woodrow Wilson on December 23, 1913.

The system was established to provide the country with a safer, more flexible, and more stable monetary and financial system in response to frequent financial panics, particularly the Panic of 1907.

It has been amended many times since, including the 1977 amendment that clarified its dual mandate:

·         Maximum employment

·         Stable prices

The primary tool of the Fed is the setting of interest rates.

The Chairman is appointed by the President for a term of six years confirmed by the Senate. 

It is designed to be independent and free of political influence.  This system has worked well for many years.

Recent controversy has risen over the Current Fed policy on interest rates.

The current Chairman is J. Powell.  His position has become Over Restrictive on interest rates (See the Previous Cogport Post on this subject).

After almost 50 years of the current mandate, it is time to look at a Reform of the Fed.

First, let’s compare the Fed Reserve to Central Banks in other countries, and how they operate.

Comparison Table

Country	Central Bank	Employment Mandate?	Inflation Mandate?	Notes
United States	Federal Reserve	✅ Yes (explicit)	✅ Yes	One of the only banks with dual mandate
Eurozone	European Central Bank	❌ No (secondary)	✅ Yes	Price stability is overriding goal
United Kingdom	Bank of England	⚠️ Indirect	✅ Yes	Supports jobs only if inflation goal met
Canada	Bank of Canada	❌ No (indirect)	✅ Yes	Focuses mainly on inflation
Australia	Reserve Bank of Australia	✅ Yes (full employment)	✅ Yes	Mandate includes employment and welfare
Japan	Bank of Japan	❌ No	✅ Yes	Price stability only

Only a few countries—like the United States and Australia—explicitly include employment or labor participation in their central bank mandates. Most others, especially in Europe and Asia, prioritize inflation control, and consider labor outcomes only as secondary or indirect goals.

Current Situation

Now we have a Fed Chairman who is not performing well.  Under the current structure, he cannot be removed unless for “cause” which is a high legal barrier. 

Trump would like to fire him, but he does not have the legal authority. 

Comparing the U.S. experience of the Fed Reserve with other Central Banks, it is time to consider a Reform.

Cogport proposes the following:

• Maintain the Fed Reserve as an independent organization.

• Revise the Dual Mandate to

• o   Inflation Control

• o   Economic Growth

• Revise the Fed Chairman’s term from six years to four years.

• Allow the President to recall the Fed Chairman for poor performance (Lack of Confidence).

• On recall, the Senate would vote whether to remove the Fed Chairman from office.

Summary

As previously posted, the Fed Reserve Rates are currently too Restrictive.

The Fed Chairman needs to be independent of politics, but J. Powell has become obstinate, and we can only hope he sees the light to lead a reduction in interest rates.

Under the Cogport Reform, he would have to give more Creedence to outside opinion or be subject to Recall.

David Hollaender                                                       July 21, 2025

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