Now that the polls for the 2024 presidential election are closed, it’s time to examine what the new administration's role truly means for the U.S. economy. Larry Fink, CEO of BlackRock, previously noted that we “over-conflate what it means” to have a Trump or Harris presidency in terms of economic outcomes, emphasizing that the election itself would not require drastic economic shifts [1]. This perspective prompts a fundamental question: what truly influences the U.S. economy? While geopolitical factors like wars and oil price fluctuations certainly drive change, the election's economic impact may be less substantial than widely believed. The focus on presidential leadership often overlooks a critical reality: the Federal Reserve Reform Act of 1977 significantly curbed presidential control over economic performance [2]. Given this critical yet overlooked reality, the public should reassess the weight placed on presidential candidates' economic promises.

The Act That Changed Everything

In 1977, Congress passed the Federal Reserve Reform Act, fundamentally altering the balance of economic power in the U.S..  This legislation amended the original Federal Reserve Act of 1913 and clearly defined the Fed's monetary policy objectives. It established a framework for increased accountability, transferring significant control over economic performance and employment levels from the presidency to the Federal Reserve.

Key Changes Introduced by the Act

The Federal Reserve Reform Act of 1977 marked a watershed moment in American monetary policy by establishing explicit goals for the Federal Reserve System. The Act, known as the "dual mandate," formally codified the Fed's responsibility to pursue maximum employment and stable prices while also maintaining moderate long-term interest rates. This gave the Federal Reserve clear, measurable objectives, enabling evaluators to assess its performance.

A crucial aspect of the 1977 reforms was the significant expansion of Congressional oversight. The Act mandated that the Federal Reserve Chairman appear before Congress twice a year to report on monetary policy and economic projections. This semi-annual testimony, combined with new regular reporting requirements, created a formal structure for accountability that had not previously existed.

The Act's reform of leadership terms proved significant in the case of Alan Greenspan, who served as Federal Reserve Chairman from 1987 to 2006. During this period, Greenspan guided the Federal Reserve through major economic challenges, including the 1987 stock market crash, the 2001 dot-com bubble burst, and the lead-up to the 2008 financial crisis. He promoted low-inflation policies that stabilized the U.S. economy during periods of rapid growth and shaped the economic landscape by advocating for financial market deregulation. Although this approach fueled expansion, it later faced criticism for contributing to conditions leading up to the financial crisis. Greenspan’s leadership reinforced the Fed’s role as an independent economic stabilizer and underscored the importance of central bank autonomy. The 1977 Act's establishment of renewable four-year terms for the Chairman and Vice Chairman positions enabled Greenspan to serve across four different presidential administrations, as Presidents Reagan, Bush, Clinton, and Bush Jr. each reappointed him. This unprecedented tenure, which the Reform Act's provisions made possible, allowed for remarkable continuity in monetary policy leadership during a period of significant economic transformation.

Finally, the Reform Act expanded the Government Accountability Office's authority to audit Federal Reserve operations, though it maintained certain restrictions on auditing monetary policy decisions. This careful balance aimed to increase transparency while preserving the Fed's operational independence in conducting monetary policy. These changes collectively represented a significant shift toward greater accountability while maintaining the Federal Reserve's ability to make independent economic decisions.

How the Act Shifted Economic Control

The 1977 Federal Reserve Reform Act fundamentally restructured American economic governance by transferring substantial control from the executive branch to the Federal Reserve System [3]. According to economists like Allan Meltzer, the Act established unprecedented independence in monetary policy formulation, allowing the Fed to pursue economic objectives without succumbing to short-term political pressures. This shift meant the Federal Reserve could focus on long-term economic stability rather than aligning with any particular administration's political agenda [4].

The Act's inclusion of "maximum employment" as a core mandate marked a significant transfer of power. Where presidents had historically claimed employment levels as their domain, this responsibility now formally resided with the Federal Reserve. Similarly, by emphasizing "stable prices" as a primary objective, the Act positioned the Fed as the principal guardian against inflation, effectively constraining presidential ability to pursue expansionary policies that might destabilize prices. As William Greider notes in "Secrets of the Temple," this shift became especially apparent during Paul Volcker’s chairmanship between 1979 and 1987  when the Fed's anti-inflation policies often ran counter to executive branch preferences [5].

The Act's emphasis on "moderate long-term interest rates" further reinforced this institutional rebalancing by explicitly prioritizing extended economic stability over short-term gains. This provision proved important during election cycles, when administrations historically faced strong incentives to pursue temporary economic boosts at the expense of longer-term stability. As John Taylor argues in his influential work on monetary policy rules, this long-term orientation has been crucial in establishing the Fed's credibility as an independent economic steward [6].

Implications for Presidential Elections

As the Federal Reserve now wields greater control over monetary policy, voters should approach presidential candidates' economic promises with a more discerning eye. Presidents can no longer easily pressure the Fed to stimulate the economy for political gain, as the Federal Reserve Act of 2022 has significantly curtailed their influence over interest rates and the money supply. This shift reduces the potential for election-year manipulation of the economy, making it more difficult for administrations to artificially boost economic indicators.

Consequently, presidents can no longer claim sole responsibility for the nation's economic performance. The Fed's role in shaping economic outcomes now necessitates a shared narrative, where both the president and the central bank share credit or blame. Moreover, with monetary policy largely outside their direct control, presidents must rely more heavily on fiscal policy tools, such as taxation and government spending. However, these tools require congressional approval, making their implementation more complex and subject to political gridlock.

The 2024 Election: A New Perspective

While economic promises often dominate campaign platforms, voters must recognize the limits of presidential influence over the economy. The Federal Reserve plays a central role in managing key economic levers, such as interest rates and inflation control, which means that a president's impact remains largely indirect (e.g., through appointments to the Federal Reserve Board or the formulation of fiscal and trade policies). Consequently, voters should focus not just on economic pledges but on candidates' wider policy agendas.

Understanding the president's actual role in economic outcomes helps voters assess candidates more realistically. The president primarily influences the economy through fiscal proposals, and key appointments, such as choosing to reappoint the Fed Chair or nominating a new one for Senate confirmation. Therefore, a candidate's long-term economic vision—and how well it aligns with the Federal Reserve's dual mandate of stable prices and maximum employment—should weigh heavily in the decision-making process. Voters might also consider whether candidates intend to expand entitlement programs and government growth or aim for greater efficiency in using taxpayer funds and national borrowing.

Since the Federal Reserve shoulders much of the economic management, voters have the opportunity to prioritize other issues where presidential authority proves more direct and impactful. Areas such as foreign policy, healthcare, and environmental regulation fall squarely within presidential influence and deserve careful scrutiny. By looking beyond economic promises to the broader scope of presidential responsibilities, voters can make more informed and balanced choices in 2024.

In the End

With the 2024 election now behind us, it’s essential to reflect on the broader implications of presidential influence in shaping economic outcomes. The Federal Reserve Reform Act of 1977 has fundamentally redefined the role of the presidency in economic management, placing critical monetary policy controls—such as interest rates and inflation regulation—in the hands of the Federal Reserve rather than the White House.

As the new administration begins its term, it is helpful for both policymakers and the public to focus on areas where presidential influence is most direct and impactful. Rather than expecting swift economic transformations, citizens can better appreciate the nuanced balance between presidential initiatives, fiscal policy, and the Federal Reserve’s long-term economic mandate. The lessons of this election cycle underscore the value of holding presidents accountable for matters squarely within their control, such as foreign policy, healthcare, and environmental regulation, rather than for economic factors largely governed by the Federal Reserve.

In the years ahead, a well-informed electorate will be vital in sustaining a balanced democracy, understanding that while the presidency holds significant power, it does so within a system designed to promote economic stability and resilience beyond political cycles.

About us: mXa, on the 20+ year foundation of Method360, was founded to intentionally serve fast-growth companies and the unique challenges they face. We understand that inorganic and organic growth provokes change, ambiguity, and uncertainty that can deeply burden the organizations involved. By seeking to understand the human element in M&A and fast growth environments, mXa embraces a unique, contrarian approach in advising clients that seeks to realize maximum value for them in alignment with business objectives.

Interested in learning more about our capabilities or discussing your story? We’re here to help.

Sources:

1. Fink Sees Less Systemic Risk in Markets (10/01/2024). Bloomberg (https://www.bloomberg.com/news/videos/2024-10-01/in-full-blackrock-s-fink-on-us-economy-risks-election-video) 

2. Binder, S., & Spindel, M. (2017). The Myth of Independence: How Congress Governs the Federal Reserve. Princeton University Press. (https://law.yale.edu/sites/default/files/area/center/corporate/spring2021_paper_bindersarah_2-4-21.pdf )

3. Federal Reserve Reform Act of 1977. (https://www.federalreservehistory.org/essays/fed-reform-act-of-1977) 

4. Allan Meltzer, (2003). A History of the Federal Reserve, Volume 2, Book 2, 1970-1986. University of Chicago Press.

5. William Greider, (1987) Secrets of the Temple: How the Federal Reserve Runs the Country. Simon & Schuster. https://books.google.com/books?id=JxSU5I58L-wC&lpg=PP1&pg=PA183#v=onepage&q&f=false 

6. John B. Taylor, (1999). A Historical Analysis of Monetary Policy Rules, (published in Monetary Policy Rules). University of Chicago Press.https://www.nber.org/system/files/chapters/c7419/c7419.pdf (focus on sections 7.3-7.5)