Many bankers support limiting the independence of the Federal Reserve, but not in the way former President Donald Trump has advocated.
Fed independence has been under a microscope this presidential election cycle thanks to Trump's insistence that, if re-elected, he should have a say in shaping monetary policy.
"I have the right to say 'I think you should go up or down a little bit,'" Trump said Tuesday during an interview in front of the Economic Club of Chicago. "I don't think I should be allowed to order it but I think I have the right to put in comments as to whether or not interest rates should go up or down."
Many in the banking industry support Trump's call for curtailing the central bank's autonomy, according to a survey of bankers conducted by the fintech IntraFi, with 36% saying they align with the Republican nominee on the issue. But only 5% of those polled backed Trump's proposal for the Federal Open Market Committee to have forced consultations with the president.
"There's a significant number of Trump supporters who actually disagree with former President Trump's position on Fed independence. Only 5% of them support the main idea that he is associated with, which is consulting with the president on interest rate decisions," said Paul Weinstein, senior policy advisor at IntraFi. "It seems like they are going to vote for President Trump, but they don't agree with his position on what's probably the most important issue for them: interest rate policy."
The responses were part of InterFi's quarterly Bank Executive Business Outlook Survey, which polled C-suite executives from 416 banks between Sept. 23 and Oct. 7. IntraFi is an Arlington, Virginia-based firm that manages deposits and liquidity for banks. The survey results were released Thursday morning.
The other 64% of respondents said they favored the stance of Vice President Kamala Harris, the Democratic nominee, which would be to maintain the recent status quo of presidential non-intervention with monetary policymaking. But not all of those executives are perfectly comfortable with the Fed's current level of autonomy — only 55% said no changes are needed.
The most popular reform option offered in the survey was to shorten the appointment terms of the Fed chair and governors — which run four years and 14 years, respectively — with 24% of respondents supporting that change. Weinstein noted that such a change would have a small impact on the central bank's independence.
More meaningful reform ideas include making the Fed's budget subject to congressional appropriations, which drew support from 20% of respondents, and shifting to a formula-based approach to monetary policy, such as the
Presidential consultation was the least chosen option, behind empowering the president to fire or demote the Fed chair at will, which was backed by 7% of respondents.
Weinstein said next month's presidential election appears to be shaping the bank sectors' sentiments in other ways, too, including the profit threats that bank executives are most concerned about.
The two biggest concerns for the coming 12 months are the onset of a recession, with 38% identifying it as the greatest threat, and Fed rate policy, at 31%. Weinstein said these risks are effectively "two sides of the same coin," noting that the baseline expectation during an economic downturn is that the Fed will lower interest rates.
Weinstein said these concerns have overtaken regulation — typically viewed as the number one threat to profitability — because of how much attention is being placed on the health of the U.S. economy.
"The election has put a really big focus on the state of the economy, and so that might be raising that up higher," he said. "Given all the regulatory issues that have been discussed in recent years, like capital standards, interchange fees and the CRA stuff, regulation would be pretty higher than it is, if we weren't talking about the state of the economy all the time."
Yet, despite these concerns, this quarter's survey results show a more optimistic outlook, with 70% saying they expect the overall economy to maintain or improve during the next year.
More than half of banks also said they expect at least moderate increases to overall loan demand in the coming 12 months, an uptick of 11 percentage points from the prior quarter. Funding expectations also improved dramatically, with 82% forecasting lower funding costs next year, up from 37% during the previous quarter. Weinstein attributed that shift to the Fed's decision to cut interest rates by half a percentage point last month and forecast more cuts into 2025.
Yet, despite these falling funding costs, many banks anticipate keeping the rates they pay to depositors elevated, with 61% saying they plan to keep deposit rates high for certain customers next year and 59% saying they will keep rates high for select account types. Overall, 55% of respondents said they expected the competitive landscape for deposits to hold steady and 33% expect it to become more competitive.
"Banks have been saying deposit competition has been pretty tight, so if it's staying the same, it's staying at a pretty tough level," Weinstein said. "Plus another 33% are saying it's going to get tougher still, so that's a big majority expecting a competitive environment for deposits. What they are basically saying is they will probably have to keep rates higher than they would like."
