Regional branches of the Federal Reserve are emerging as a critical front in the growing debate over the independence of the U.S. central bank, as political and legal pressures intensify.
Mary Daly, head of the San Francisco Fed, said the system of regional bank presidents plays a vital role in maintaining the Fed’s autonomy. Unlike members of the Washington-based Board of Governors, regional presidents are not appointed by elected officials, a structure designed to balance political influence with local economic insight.
Her comments come as Donald Trump renewed criticism of the central bank, stating he would consider removing Fed Chair Jerome Powell if Powell remains on the Board of Governors beyond his current term. Such a move could allow the White House to exert greater influence over monetary policy.
The issue is further complicated by an ongoing legal battle involving Lisa Cook, whose dismissal by Trump is being challenged, with the U.S. Supreme Court expected to play a decisive role.
At the center of the debate is whether the current structure of the Fed—established under the Federal Reserve Act—can withstand mounting political pressure. The system divides authority between a centrally appointed board in Washington and 12 regional banks, five of whose presidents vote on monetary policy on a rotating basis.
Critics argue that reforms under consideration by Treasury Secretary Scott Bessent and others could weaken the Fed’s independence. Meanwhile, Trump’s nominee to succeed Powell, Kevin Warsh, has called for significant changes, though details remain unclear.
Some economists warn that even unsuccessful legal or political challenges could erode confidence in the Fed’s independence. Kathryn Judge said recent developments may lead to a period of “disruption” that could leave the institution more vulnerable.
Others have gone further, suggesting the president should have broader authority to dismiss Fed officials. However, critics caution that such powers could politicize monetary policy. Former Fed official James Bullard warned that allowing political leaders to remove central bank officials at will would be “playing with fire,” potentially leading to policy decisions driven by short-term political goals rather than long-term economic stability.
As debates continue, the role of regional Fed banks—often seen as a buffer against political influence—may prove pivotal in determining the future balance between independence and accountability at the U.S. central bank.