Heritage Foundation chief economist E.J. Antoni said Saturday on Newsmax that the Federal Reserve should unwind a 2020 policy framework he argued effectively pays banks not to lend, a critique that comes as President Donald Trump weighs prospective nominees to replace Fed Chair Jerome Powell and as the central bank continues to cut rates.
Antoni made the remarks on Newsmax’s "Wake Up America Weekend" in response to a question about how a replacement could reshape the central bank.
"Well, going back to what I said earlier, this monetary framework that Powell, and his fellows at the [Federal Reserve] created in 2020, if we get a Fed chair who really understands monetary policy, one of the first things they'll do is to roll back that monetary framework," he said.
"One of the crazy things we've been doing is paying banks, literally hundreds of millions of dollars in interest a day out of the Fed in order for these banks to not lend money.
"We keep talking about why are interest rates so high on the national debt, why are they so high on mortgages, on credit cards, student loans, auto loans, you name it.
"It's because we're all having to compete with the Fed in the loanable funds market," Antoni said.
"In other words, you need to stop the Fed [from] paying back banks money not to lend so that banks will go back to lending that money to us.
"The increased competition from the Fed is a big reason why rates are so high today.
"It's not just a matter of the Fed turning the dials and putting rates up or down, it's a matter of completely redoing this monetary framework," he said.
Meanwhile, attention is intensifying on the Fed’s direction as Powell’s term nears its end.
In an interview with The Wall Street Journal this week, Trump said he is leaning toward nominating either former Fed Governor Kevin Warsh or National Economic Council Director Kevin Hassett.
"The two Kevins," Trump called them. He also reiterated his belief that the Fed chair should consult the president about interest rate decisions.
The Fed’s policy committee voted this week to lower the federal funds rate by a quarter-point for the third consecutive meeting, aiming to stabilize the faltering job market by reducing borrowing costs.
The material described it as one of the last scheduled meetings of the Federal Open Market Committee before Powell’s term ends in May, a timeline that has prompted investors and economists to speculate about how the central bank could change under new, Trump-appointed leadership.
That speculation surfaced repeatedly during Wednesday’s post-meeting press conference, according to the same report.
Asked whether the approaching end of his term hindered his ability to do his job or affected his thinking, Powell responded, "No."
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