Trump is subtly altering the Federal Reserve's structure, despite avoiding the dismissal of Powell
Trump Administration Plans Major Overhaul of the Federal Reserve
The Trump administration has announced plans for significant changes to the Federal Reserve, aiming to reshape the institution's role and operations. The proposed reforms seek to reduce regulatory constraints on banks, shrink and restructure the Fed’s workforce, and refocus the Fed’s monetary policy mandate.
Easing Banking Regulations
Michelle Bowman, elevated by Trump to vice chair of the Fed’s Board of Governors to lead banking regulation, is expected to push for significant deregulation. This comes as the administration reviews and eases many banking rules imposed after the 2008 financial crisis. Critics, however, argue that these changes may weaken the capital of the largest banking organizations, putting the banking system at risk.
Revising Spending Priorities and Federal Reserve Workforce
Treasury Secretary Scott Bessent has indicated a review is underway of the Fed's tens of thousands of employees nationwide. There is an intention to cut staff and reorganize the workforce as part of sweeping reforms. The Fed's workforce consists of approximately 24,000 employees, with about 3,000 based in Washington, DC. The Fed's workforce is employed at regional banks across the country, in addition to its headquarters. Conducting mass layoffs at the Fed may require a vote of the Board of Governors.
Refocusing the Fed’s Monetary Policy Mandate
The conservative Project 2025 plan, aligned with Trump’s agenda, suggests limiting the Fed’s mandate strictly to stable money and addressing what it calls “monetary dysfunction” linked to political bailouts and difficulty fine-tuning the money supply in real time. The nation's largest banks have cheered the decision, arguing that it will allow them to lend more to businesses and consumers.
Future Changes
Jerome Powell, current Chair of the Federal Reserve, will step down in May 2026. Changes will accelerate after this or if he resigns or is fired. Kevin Warsh, a potential successor to Powell, has suggested there is "plenty of deadwood" at the central bank. The new chair may want to pursue a broader downsizing of the Fed, but it's unclear how seriously other Board members would support such changes.
The Trump administration's criticism of the Fed's $2.5 billion renovation project indicates a view of the central bank as an excessive spender. The Fed is revisiting and easing a raft of banking rules that came about in the aftermath of the global financial crisis of 2008. The Fed proposed an overhaul of how much buffer global banks must have against their total leverage in June, after Bowman assumed her new role.
A day-long conference spearheaded by Bowman at the Fed's headquarters in Washington, DC, focused on reconfiguring banking rules, and the banking industry wants simpler regulation. The administration's reforms are seen as a broad overhaul targeting both operational and policy aspects of the central bank. The Trump administration aims to make changes at the Federal Reserve, similar to changes made in the rest of the federal government.
The Trump administration's plans for the Federal Reserve include refocusing the Fed's monetary policy mandate, with the conservative Project 2025 suggesting a narrow focus on stable money and addressing perceived monetary dysfunction. The administration's proposed reforms also aim to ease banking regulations, as Michelle Bowman, vice chair of the Fed’s Board of Governors, is expected to push for significant deregulation. The future of the Fed's workforce is also under review, with Treasury Secretary Scott Bessent indicating a intention to cut staff and reorganize the workforce as part of sweeping reforms.
