A New Era at the Federal Reserve?

U.S. Federal Reserve Chair Kevin Warsh took the oath of office as chair and a member of the Board of Governors of the Federal Reserve System on May 22, 2026. The leadership transition followed a tense period in which former Federal Reserve Chair Jerome Powell faced criticism from President Donald Trump for his alleged unwillingness to lower interest rates. Powell also faced scrutiny after the U.S. Department of Justice investigated cost overruns related to the Federal Reserve’s headquarters renovation project, although the Justice Department later dropped the investigation.

A recent U.S. Supreme Court decision, Trump v. Cook, reinvigorated questions about the central bank’s independence and the President’s ability to assert greater control over its senior leadership. In that case, the Court rejected President Trump’s attempt to remove Federal Reserve Governor Lisa Cook over allegations of mortgage fraud. The decision left questions about whether the Federal Reserve can preserve its ability to determine U.S. monetary policy free from political influence. Economists have long viewed central bank independence as crucial to economic growth and stability.

The Federal Reserve has also faced criticism for its response to the inflation surge that followed the COVID-19 pandemic and resulting economic shock. During the COVID-19 crisis, the Federal Reserve intervened in financial markets and purchased financial assets to inject cash into the economy, a process known as quantitative easing. Inflation rose quickly in 2021 and 2022, forcing the central bank to raise interest rates rapidly. Critics such as Warsh point to the Federal Reserve’s alleged missteps as evidence that the central bank needs major reform.

Beyond its monetary policy responsibilities, the Federal Reserve has taken on increased regulatory functions over the years. Some economists now contend that the Federal Reserve has strayed too far from its original mandate, in particular by playing an outsized role in regulating U.S. banks. Critics of the Federal Reserve argue that the bank should refocus on preserving price stability and promoting maximum employment, leaving traditional bank regulation to other government agencies.

In this week’s Saturday Seminar, scholars examine challenges facing Federal Reserve policymakers and offer reforms to help the central bank better achieve its goals.

• By focusing on inflation rather than credit regulation, the Federal Reserve misinterprets its congressional mandate, argues Vanderbilt Law School’s Ben Dinovelli in a Harvard Law Review note. Dinovelli contends that, under the Federal Reserve Act, the central bank’s sole mandate is to regulate credit, and that policymakers’ focus on aggregate inflation rests on a mistaken reading of the Act. He attributes the shift in focus to former Federal Reserve Chair Paul Volcker’s tenure in the 1980s. Dinovelli argues that the Fed should combat only inflation caused by credit, not inflation caused by other forces such as supply shocks.
• In a policy brief for George Mason University’s Mercatus Center, Robert Hetzel urges the Federal Reserve to adopt a decision-making framework rather than rely on discretionary judgments. According to Hetzel, the central bank’s relationship with Congress is opaque, and its policy decisions rely too heavily on discretion. Hetzel contends that these factors make the Federal Reserve appear as the sole source of monetary policy, independent from oversight. Hetzel argues that a rule-based framework, with clearly communicated objectives, would promote the Federal Reserve’s accountability and transparency and allow both Congress and the public to assess monetary policy decisions.
• In an article in the FIU Law Review, Jamie Grischkanof Fordham University School of Law proposes restructuring the Federal Reserve to separate its monetary policy and regulatory functions while preserving the central bank’s supervisory expertise. Grischkan argues that proposals to strip the Federal Reserve of its regulatory authority overlook how its supervisory role developed and why it has become integral to financial oversight. She advocates creating an independent regulatory and supervisory commission within the Federal Reserve and recasting financial supervision as an explicit institutional function rather than a responsibility shared with monetary policymakers.
• In a New York University Law Review note, Soomin Shin of New York University School of Law argues that the Federal Reserve should adopt elements of the European Central Bank’s green monetary policy to address climate-related financial risks. Comparing the two central banks’ statutory mandates, institutional structures, and monetary policy tools, Shin contends that the Federal Reserve has sufficient legal authority to incorporate climate considerations into its operations. She proposes that the Federal Reserve continue researching climate-related macroeconomic risks and implement a green collateral framework modeled on the European Central Bank’s approach.
• In an essay for the Cato Institute, Norbert Michel and Jai Kedia argue that although the Federal Reserve’s regulatory footprint has grown steadily over the last century, it has repeatedly failed to prevent major financial failures, such as the collapse of multiple banks in 2023. Michel and Kedia contend that the central bank’s monetary policy mandate conflicts with its regulatory obligations because actions it takes to achieve its dual mandate may harm the banks it regulates. Michel and Kedia suggest that the Federal Reserve does not need to serve as the primary regulator of banks because other agencies can perform those functions.
• In an article in the Fordham Law Review, Columbia Law School’s Lev Menand examines the conflict between central bank independence and the unitary executive theory, which, in its strongest form, would give the President control over the Federal Reserve’s activities. Because economists view central bank independence as crucial to a well-functioning economy, proponents of the unitary executive theory attempt to distinguish the Federal Reserve from other independent agencies. Menand rejects this distinction, arguing that the two theories are incompatible and that monetary policy and central bank independence fall within Congress’ power of the purse. He contends that the constitutional structure was designed to ensure legislative control over spending and to prevent executive control over the money supply.