President TrumpOpens a New Window. recently laced into the Federal ReserveOpens a New Window., stating that it “doesn’t know what it is doing” while arguing that it is “the most difficult problem” facing the United States today.
Trump’s concern over the Fed’s abilities is commendable. Despite being created to protect the U.S. dollar and prevent economic crises, under its watch, major U.S. recessions have occurred, and Americans’ buying power has declined by a full 95 percent.
It seems that the only thing the Fed is good at is making life hard on the middle class by inflating consumer prices. According to data from the Heritage Foundation, Consumer Price Index inflation in the pre-Fed years of 1790-1912 was just 0.22 percent, but between 1913-2013, it skyrocketed to 3.35 percent. So much for its goal of stabilizing prices.
Clearly, the Federal Reserve hasn’t gotten much right over its century-plus of existence, and as the first president since Ronald Reagan to do so, Trump deserves credit for shedding light on some of its shortcomings. But calling out the central bank’s failures is one thing; acting on instinct by checking its power is quite another.
Which raises the question: will Trump stop the Fed from doing even more harm to the American economy by preventing it from extending its tentacles into other parts of the U.S. financial system?
Soon, in defiance of legislation from Congress, the Federal Reserve may act on its October proposal to enter the real-time payments business – a plan that, if implemented, will be just as damaging to free market competition and the economy at large as it will be to balance of power in Washington.
Real-time payments, is, quite simply, the act of ensuring immediate, on-the-spot bank transfers. As the Fed explained itself, the U.S. needs faster payments “for the conveniences they provide, such as the ability to pay another individual on-the-spot using a mobile phone application,” providing “consumers, households, and businesses more flexibility in managing their money…”
In this regard, it is hard to argue with the Fed. Domestic banking in America is slower than much of the rest of the world, including the European Union, the United Kingdom, Mexico, Poland and South Africa, so a real-time payments system is certainly something that the U.S. needs. But there are plenty of reasons for the Fed to not involve itself.
The first among them is that Congress says so. The Monetary Control Act, signed into law in 1980, states that the Fed can only create its own payment services if “the service is one that other providers alone cannot be expected to provide with reasonable effectiveness, scope, and equity.”
By no stretch of the imagination can one argue that this is the case here. Private-sector initiatives that have already launched and succeeded — from PayPal’s instant transfer program created in March, to Venmo to Mastercard Send and The Clearing House’s RTP system (which now functions for half of all U.S. checking account volume). American entrepreneurship ingenuity in this space has already proven its effectiveness, so per congressional mandate, the Fed must step back.
Although every measurable piece of data, from U.S. law to statistical evidence, points against the Fed extending its wings here, learning from the past has never been the central bank’s strong suit. That is why Trump must continue to hold its feet to the fire.
Trump should work with Sen. Rand Paul, R-Ky., and Rep. Thomas Massie, R-Ky., to expedite passage of their Audit the Fed legislation should the Federal Reserve decide to disobey the will of its creator – Congress – by involving itself in real-time payments. After all, their bipartisan legislation came just seven votes shy of passing not long ago. With the Fed extending its wings even further and the president finally making good on his promise to push the bill through, it should be all but certain of arriving on his Oval Office desk for signing.
In short, President Trump is right – the Fed doesn’t know what it is doing – but it is up to him to stop it from further increasing in power. For over a century, the central bank has inadvertently caused rampant inflation, economic recessions, and even wealth inequality.
While he doesn’t control monetary policy, the least the president can do is prevent the Fed from running the private marketplace amuck by disobeying orders from Congress, the very body that created it in the first place. Let’s hope he’s up for the task.