President Trump has been clear about his disdain for the Federal Reserve. During his first term, he frequently badgered the Fed, firing off social media posts that described Fed officials as “boneheads.”
Trump’s attacks on the Fed during his first term were limited to intimidation tactics. He claimed the Fed’s monetary policy lacked transparency and accountability, but he never backed up his criticism with data.
However, that could change as Trump enters his second term. The administration has already shown it is serious about aggressive financial reforms. His newly established Department of Government Efficiency, which is helmed by Tesla CEO Elon Musk, has initiated dramatic financial overhauls involving many agencies.
Trump could take the next step in his assault by calling for a full-scale audit of the Fed. His administration has already pushed for aggressive cost-cutting measures, including canceling nearly 500,000 government credit cards and reviewing federal payment systems. These moves suggest a willingness to delve deeper, potentially probing the Fed’s balance sheet.
Most fiscal conservatives would say an audit of the Fed is long overdue.
Inflationary pressures over the last several years have led many to question the Fed’s handling of money supply, interest rates and quantitative easing. An official Fed audit would give the American people a better understanding of what goes on behind closed doors.
The Federal Reserve Transparency Act, introduced in the House of Representatives in 2009, would mandate the type of audit that Trump and Musk have suggested. The bill has been introduced numerous times, including during Trump’s last presidential term, but it has not become law. After Trump’s re-election, the bill was reintroduced by Rep. Thomas Massie, R-Ky., who explained the bill seeks a full examination by the Comptroller General of the Board of Governors of the Federal Reserve System and the Federal Reserve Banks.
Trump has said he supports the bill, but he hasn’t been as vocal on proposals for auditing the Fed during his second term. In fact, an executive order issued in February aimed at “ensuring that all federal agencies are accountable to the American people,” specifically mentions “the monetary policy functions of the Federal Reserve” as an issue that would be exempt from heightened White House scrutiny.
By design, the Fed carries out its duties with a high degree of independence. The fact that Congress is pursuing an audit through lawmaking shows it is not something Trump could initiate through an executive order or other presidential action.
And legal hurdles aren’t Trump’s only concern. Pushing too hard for an audit or pursuing it through the wrong means could trigger backlash from policymakers, financial institutions and the public.
Initiating an audit could also inspire market instability, which is something Trump has seen too much of during his second term. If investors fear the audit would amount to political interference in the Fed’s operations, it could disrupt financial markets.
Trump has made it clear that he wants to have more influence over the Fed. While an audit could help him in that area, it is unclear at this point whether he has the political will to overcome the hurdles that stand in the way of the measure.
Moving forward, the strength of the economy will likely dictate the energy Trump expends on encouraging an audit. If the Fed’s actions inspire results that satisfy investors, they may also inspire Trump and Musk to back down.