By Nicholas Jasinski
A widely circulated conservative policy platform for the next presidential administration would impose significant restrictions on the Federal Reserve's mandate and the tools it can use to implement monetary policy.
The so-called Project 2025, put forward by the conservative think tank Heritage Foundation, includes as its main recommendations for the Fed a focus on controlling inflation, reducing the size of its balance sheet and ending its lender of last resort role. Further proposals would return the US to the gold standard or abolish the Fed altogether.
The broad policy outlines of Plan 2025 are laid out in a roughly 900-page book called Empowering Leadership: The Conservative Promise. The book was edited by Paul Dans and Steven Groves (both of whom served in Donald Trump’s administration) and includes contributions from about 400 conservatives who offer detailed recommendations for the White House and every federal agency.
The chapter on the Federal Reserve harshly criticizes the central bank's "inept" management of the U.S. money supply and financial regulation since it was created by Congress in 1913. The report notes that the Fed's responsibilities have expanded over the years and argues that the central bank faces political pressure to stimulate economic growth and finance government budget deficits before elections.
The book states: "A central problem with government control of monetary policy is that it faces two unavoidable political pressures: pressure to print money to finance government deficits, and pressure to print money to artificially stimulate the economy until the next election. Both of these pressures are always at the mercy of self-interested politicians, so the only permanent remedy is to take the monetary steering wheel away from the Fed and give it back to the people."
The 2025 plan makes several broad recommendations for the Fed. The first is to eliminate its dual mandate — currently to ensure price stability and full employment — which, the book argues, has created a damaging bias toward inflation in the name of avoiding recession.
“Proponents of this broader mandate claim that monetary policy is necessary to help the economy avoid or escape a recession,” the book reads. “This compromise view is wrong. In fact, the same loose monetary policy can also lead to a series of failures that cause a recession. In other words, the dual mandate may inadvertently exacerbate a recession rather than repair it.”
Instead, the book argues, the Fed should focus solely on curbing inflation. Changing the dual mandate would require an act of Congress. In recent weeks, Fed officials have begun to increasingly emphasize the labor issue aspect of the dual mandate. Inflation has slowed sharply since 2022, although it remains above the Fed's 2% annual target, and the labor market has begun to cool from overheated levels.
The 2025 plan proposes to gradually reduce the size of the Fed's balance sheet (currently over $7 trillion) and limit future asset purchases to U.S. Treasuries. The Fed's balance sheet swelled dramatically after multiple rounds of quantitative easing following the 2007-08 financial crisis. During the pandemic, the Fed attempted to inject liquidity into the U.S. banking system through large-scale purchases of Treasuries and mortgage-backed securities, swelling the balance sheet again. In June 2022, the Fed began gradually reducing its balance sheet, a process known as quantitative tightening (QT).
The authors of the 2025 plan argue that quantitative easing has pushed up the federal budget deficit at the expense of other borrowing in the economy, while purchases of mortgage-backed securities have pushed up house prices and rents by depressing mortgage rates.
The book also recommends eliminating the central bank’s lender of last resort role. In times of extreme financial stress, the Fed can and does provide liquidity to banks and other financial institutions in the name of preventing bank runs and contagion to other parts of the financial system.
The 2025 plan argues that this would lead to moral hazard and excessive speculation, as well as the creation of institutions that are “too big to fail”.
“This amounts to a long-term bailout program and encourages banks and non-bank financial institutions to engage in reckless lending and even speculation,” the book states. “This not only exacerbates economic cycle fluctuations, but may also lead to financial crises that required bailouts, as in 1992 and 2008.”
Other broader but less politically feasible suggestions in the book include moving to free banking, returning to the gold standard, and adopting a more formulaic or rules-based approach to monetary policy.
“Under free banking, neither interest rates nor the money supply are controlled by the government, the Federal Reserve is effectively abolished, and the Treasury is largely responsible for handling the government’s money,” the book states.
The 2025 plan also opposes the creation of a central bank digital currency, which the Federal Reserve has been studying for years, due to concerns that the federal government could monitor financial transactions.
Trump, who accepted the Republican nomination this week and is expected to return to the White House in November, has recently sought to distance himself from the plan, but it was prepared by multiple former Trump administration officials and advisers.
The chapter on the Federal Reserve is written primarily by economist Paul Winfree, who currently directs the Center for Economic Policy Innovation in Washington, D.C., and served twice as director of economic policy studies at the Heritage Foundation, from 2015 to 2016 and from 2018 to 2022. During this time, Winfree served in a number of positions in the Trump White House, starting with the 2016 presidential transition team, then as deputy assistant to the president for domestic policy, deputy director of the Domestic Policy Council, and director of budget policy.
Other contributors to the chapter on the Fed include economists Alexander Salter, Peter St Onge and Judy Shelton, whom Trump nominated to the Fed’s board of governors in 2019 but was not confirmed by the Senate.
