There’s a well-known approach in politics when one agency wants another agency–not under its direct control–to do something. You first try to soften up the resistance of the other agency by accusing them of stuff. It’s even better if the accusations have some substance behind them, but really, all that matters is that the accusations put public pressure on them. When their public persona is tarnished and their resistance is weakened, you then follow up with what you actually want. The softening-up process is underway at the Federal Reserve.
Jay Powell’s four-year term as chair of the Federal Reserve expires in May 2026, although his 14-year term on the Fed Board of Governors lasts through January 2028. The softening up is about Federal Reserve staffing and budgeting. But President Trump would clearly prefer that the Federal Reserve be less independent, and instead would coordinate with the wishes of the US Treasury and the President.
For example, Treasury Secretary Scott Bessent is apparently one of the possibilities to replace Powell as Fed chair. In a recent interview with CNBC, he said:
I think that what we need to do is examine the entire Federal Reserve Institution and whether they have been successful. … The Fed, as well, deals with monetary policy, regulations, financial stability. And again, I think that we should think, has the organization succeeded in its mission? You know, if this were the FAA and we were having this many mistakes, we would go back and look at, why has this happened? … [Y]ou know, all these PhDs over there, I don’t know what they do. I don’t know what they do. This is like universal basic income for academic economists.
So is the Fed overstaffed? Here’s total Fed employment, including both the Washington, DC, office and the 12 regional Federal Reserve banks.
I cannot claim to have made an intense study of annual fluctuations in Fed employment levels. But in a big-picture sense, the overall drop in Fed employment in the first decade of the 21st century is partly due to a dramatic decline in the use of paper checks. One task of the Fed behind the scenes is to run the US system of payments, so that when a person or organization with accounts at one bank wants to make or accept a payment from a person or organization with accounts at another bank, the Fed keeps track of these transactions. Fewer paper checks meant fewer workers needed. In addition, the spread of email and voicemail mean that a number secretarial and support positions were eliminated.
In 2010, the Wall Street Reform and Consumer Protection Act, commonly known as the Dodd-Frank Act, was signed into law in the aftermath of the Great Recession. A number of provisions of the act gave the Fed a more central and leading role in bank regulation and supervision, as well as some oversight of credit card companies, mortgage and car lenders, and others. With those additional responsibilities, the number of employees expanded. Circa 2023, the reason for the turndown in employment seemed focused on technology jobs in the Fed, and a sense that new technology was requiring fewer people to run the systems.
Out of the total employment of about 21,000, the Fed employs about 400 PhD economists. If one was to take seriously Bessent’s comment he doesn’t know what Fed economists do–and I don’t recommend taking the comment seriously–then he should either fire some staff or resign himself. After all, any decent Secretary of the Treasury would know perfectly well how the Fed works and what the PhD economist are doing.
I’ll offer a bit of help to the US Secretary of the Treasury here by pointing to this “Meet the Researchers” webpage where the Fed lists researchers and links to their research. Also, a substantial number of the PhD economists at the Fed are not researchers or economic forecasters, but instead work in other activities of the Fed like payments, bank supervision and financial regulation, addressing financial instability (say, at the worst economic points of the pandemic or the Great Recession, when it looked as if the US financial system could seize up and fail to function), and so on.
There are legitimate questions to raise about whether the Fed should be trimming back further on its staff, both in DC and in the regional Federal Reserve banks. But by international standards, at least, the Fed doesn’t seem dramatically overstaffed. Benjamin Kingsmore at the Bank Underground website puts together the following chart showing a breakdown of how the 480,000 or so people who work at central banks around the world.
The other main pressure point for softening up the Fed is the cost of the the overhaul of its main building, which was originally estimated at a shade under $2 billion but now is apparently coming in at about 30% over budget. This is roughly the same as the cost of the new football stadium for the Buffalo Bills being built in upstate New York.
You can look here for a Federal Reserve website defending and explaining the costs and overruns. I have particular desire to defend the cost or the overruns. From what I can tell, they trace back to a desire to not just refurbish and overhaul the earlier building, which was probably needed, but to decisions about what features should be preserved or added. As one example, the original facade was marble, which is heavier and costlier than granite, so the decision to re-do in marble (and bronze) raised costs. There are also added features, like a glass atrium and a rooftop garden.
For a critical but well-balanced overview of the Fed issues with staffing, pay, and building plans, a useful starting point is an essay by Andrew Levin, “Is the Federal Reserve Overstaffed or Overworked? Insights from the Fed’s Financial Statements” (Mercatus Center, March 27, 2025). The tone of his discussion is well-summarized by the the subheading: “The Fed has gargantuan payrolls and building upgrades. Time for an external review.” More recently, Levin has also written a follow-up critique of the costs of the Fed overhaul of its DC headquarters. For a taste his perspective, Levin writes:
[T]his initiative is properly characterized as an upgrade rather than an expansion or renovation. Indeed, the cost of this initiative far exceeds that of a simple update to internal building systems such as wiring, cables, plumbing, and ventilation. The Fed Board campus will be enhanced by various amenities such as glass atriums and rooftop garden terraces, with only minimal changes in the number of offices for employee occupancy.
Thus, I’m not arguing that everything is hunky-dory with staffing and pay at the Fed, or that the cost of the headquarters overhaul is justified, or in general that Fed budgets don’t deserve oversight and scrutiny. I am arguing that the reason these issues are rising to prominence right now is because they are an attempt to soften up the Fed (and to some extent the public) for a bigger agenda, which is to bring the Fed under political control of the Treasury and the President.
Here is where the rubber hits the road. This goal isn’t especially hidden. For example, here’s Kevin Warsh, another front-runner for the Fed chair position:
We need a new Treasury-Fed accord, like we did in 1951 after another period where we built up our nation’s debt and we were stuck with a central bank that was working at cross purposes with the Treasury. That’s the state of things now … So if we have a new accord, then the .. Fed chair and the Treasury secretary can describe to markets plainly and with deliberation, ‘This is our objective for the size of the Fed’s balance sheet.’
For those not up on their 1951 Fed-Treasury accord history, the Federal Reserve saw its mission during World War II as helping the federal government keep its borrowing costs low at a time of enormous deficits. But after the war, inflation was on the rise, and the Fed wanted to raise interest rates to stop it. However, the Treasury and President Truman saw no particular reason why the Fed couldn’t just keep interest rates and borrowing costs low forever. Their proposal was that if inflation was a problem, the Fed could set limits on commercial bank lending–and fight inflation in that way. The Fed pointed out that World War II was over, and that the 1935 Banking Act gave them both independence and a mandate to fight inflation.
Bessent’s CNBC interview, which I mentioned earlier, is not quite so explicit about bringing the Fed under control of the Treasury. But in the interview, as well as in other speeches, Bessent’s general tone is that the Fed needs to let the Treasury–and thus the President and the Executive Branch, take the lead.
Just to be clear, the fundamental issue here is that political incentives are not the same as economic realities. Congressional oversight of Federal Reserve spending, as well as setting the main policy objectives of the Fed, is fully appropriate. But the politicians in power pretty much always want lower interest rates, because it will make borrowers happier. Politicians in power–whether back in 1951 or in the present–are pretty much never willing to accept that higher interest rates might be needed to fight off inflation or for long-term financial stability. That conflict in incentives is why pretty much all high-income countries give their central bank a fair degree of independence and a mandate to keep inflation low, rather than leaving monetary policy and bank regulation up to politicians and the electoral cycle.
As a current example of politics at work, when the Federal Reserve lowered interest rates by a half-percent in September 2024, President Trump criticized the cut as a “political move” and much too large. Then as soon as Trump was elected, when the Fed cut interest rates further in November and December, he criticized those cuts as much too small. Now, Trump is calling for the Fed to cut interest rates by a cosmic and extraordinary 3 percent. But a central bank required to serve immediate political needs, with its interest rates and bank regulation decisions, will only end up being blamed by those same politicians when things later go wrong.
