Back in 1974, in the aftermath of the OPEC oil embargo, the National Maximium Speed Law was passed by Congress and signed into law by President Gerald Ford. It required all states to enact a maximum speed limit of 55 miles per hour, or else to face a cutoff of federal highway funding. The goal was to reduce US oil consumption. At the time, advertising campaigns to inform the public of the new speed limit said, "It's not just a good idea, it's the law."
In a similar spirit, the idea that the US Federal Reserve should have a considerable degree of independence from the president and the executive branch is not just a good idea (which it is), but it is also the law. Gary Richardson and David W. Wilcox provide the legislative history in "How Congress Designed the Federal Reserve to Be Independent of Presidential Control" in the Summer 2025 issue of the Journal of Economic Perspectives (where I work as Managing Editor).
The legislative history here goes back to the Great Depression. As Richardson and Wilcox point out, the original design of the Federal Reserve back in 1913, with 12 "regional" Federal Reserve banks and the main branch in Washington, DC, was meant to decentralize monetary power. Indeed, the regional banks had some degree of power to set monetary policy in their own district. But in 1933 during the Great Depression, Congress gave President Franklin Roosevelt temporary control over monetary policy on an emergency basis. Not unexpectedly, Roosevelt liked this control. Thus, in the lead-up to what became the Banking Act of 1935, it was proposed that the president should continue to make decisions on monetary policy.
A leading figure in this argument was Marriner Eccles, a name well-known to those who have studied the history of the Fed--indeed, the Federal Reserve building in Washington, DC, is named after Eccles. He was first appointed to the Federal Reserve Board of Governors in 1934, and ended up serving until 1951--and acting as Chair of the Board from 1936-1948. Eccles pretty much wrote a bill that was introduced in the House of Representatives, proposing that the power of monetary policy should be centralized at the federal level, with the president setting that policy. In support of this position, Eccles wrote:
[A]n administration is charged, when it goes into power, with the economic and social problems of the Nation. Politics are nothing more or less than dealing with economic and social problems. It seems to me that it would be extremely difficult for any administration to be able to succeed and intelligently deal with them entirely apart from the money system. There must be a liaison between the administration and the money system—a responsive relationship.
An Eccles-type bill giving the president the power to set monetary policy passed the House of Representatives, but then ran into the opposing point of view in the Senate, where almost all the witnesses supported the idea of monetary policy being made at the national level, but opposed the idea of letting the president be the one to set monetary policy. As one example, Henry Morgenthau, who was at that time Secretary of the Treasurey, chair of the Federal Reserve Board and a close confidant of President Roosevelt, argued that monetary authority should be "concentrated in an independent Government agency” and should operate independently of “all outside influence—just as independent as you can make it . . . . [like] the Supreme Court . . . . independent of the President. . . . No member of the board could be removed except by impeachment.”
There was concern about political control over monetary policy (given that politicians always have an incentive to juice the economy before elections), and concern that political control might actually mean control by well-organized special interests like banking and financial interests. It was pointed out that central banks of other leading economies were structured to be independent of politics. Thus, the Banking Act of 1935 as passed into law and signed by Roosevelt contained the provisions for Federal Reserve independence that are familiar today: 14-year nonrenewable terms for a seven-member Board of Governors, with monetary policy decision made by a 12-member Federal Open Market Committee that incluced the Board of Governors and the heads of five regional Federal Reserve banks, chosen on a rotating basis.
One reason why Roosevelt was willing to sign this independent Fed into law was that the new Board of Governors would be phased in over time: thus, Roosevelt could continue to have a compliant Board of Governors that he had appointed for at least a few more years.
Given the current gnashings by President Trump and his advisers, who desire more direct power over setting monetary policy, this history is worth remembering. The idea of the president setting monetary policy directly was tried on an emergency basis in the early 1930s. It was then proposed on a permanent basis and thoroughly debated in Congress. However, the Banking Act of 1935 says that political independence of the Federal Reserve is not a good idea, but actually the law.
Of course, Congress retains ultimate control over the Federal Reserve. For example, the Federal Reserve Reform Act of 1977, signed into law by President Jimmy Carter is typically credited with establishing the "dual mandate" for the Fed: that is, it should seek to pursue both maximum employment and stable prices. (To be technical, the law also requires that the Fed maintain long-run growth of money and credit and seek moderate long-term interest rates, but if the "dual mandate" is successfully pursued, these other goals will tend to happen at the same time.) Congress could alter the goals for monetary policy and the Federal Reserve if it wished to do so. In addition, Congress can hold hearings and grill the Federal Reserve leadership about budgets and spending plans. Congress assuredly has the power, if it wishes, to alter the law so that Federal Reserve would be required to implement policies set by president and the executive branch.
Some legal questions involve considering very specific circumstances and shades of gray. But unless or until Congress changes the law, the political independence of the Federal Reserve and monetary policy from presidential authority is "black letter law"--that is, it is as close to clear and undisputed as a law can be.
