“Eliminate the “dual mandate.”” (Project 2025, Section 4.4: Federal Reserve, Paul Winfree, page 764, paragraph 7.)

The “dual mandate” as it pertains to the Federal Reserve refers to its two primary objectives:

1. Promote maximum employment (ensuring as many people as possible are employed in a healthy economy.)
2. Maintain stable prices (inflation control) – keeping inflation low and stable to preserve the purchasing power of money.

Winfree is arguing for dropping the employment part of their duties and focusing on controlling inflation. The practical results of this could include:

Higher unemployment. Without a mandate to pursue maximum employment, the Fed might prioritize lowering inflation at the expense of job creation. Tight monetary policy (e.g., higher interest rates) could slow economic growth, potentially leading to higher unemployment.

Weaker economic recovery. In economic downturns, the Fed may be less inclined to use aggressive measures (like lowering interest rates or quantitative easing) to stimulate the economy and promote job growth, prolonging periods of recession and unemployment.

Lower and/or more stable inflation rates. Focusing solely on inflation could lead to more aggressive action to keep prices stable. The Fed might raise interest rates quickly to curb inflation, even if doing so results in slower growth or job losses.

Higher interest rates over time. In periods where inflation is a concern, the Fed would likely keep interest rates higher, which could reduce borrowing, slow investment, and curb consumer spending. This could make long-term economic growth slower.

Less ability to mitigate crises. A singular focus on inflation would limit the Fed’s ability to respond to various economic challenges like financial crises, which often require balancing multiple objectives.

In short, eliminating the dual mandate and focusing only on price stability would likely result in more aggressive inflation control but at the cost of higher unemployment, slower economic growth, and reduced focus on job creation.

“Limit the Federal Reserve’s lender-of-last-resort function.” (Project 2025, Section 4.4: Federal Reserve, Paul Winfree, page 765, paragraph 4.)

A lender of last resort (LoR) is an institution, usually a country’s central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse. In the United States, the Federal Reserve acts as the lender of last resort to institutions that do not have any other means of borrowing, and whose failure to obtain credit would dramatically affect the economy. [Source]¹

The lender of last resort functions to protect individuals who have deposited funds—and to prevent customers from withdrawing out of panic from banks with temporarily limited liquidity.

Eliminating or limiting the lender of last resort function of the Fed increases the risk of bank failures and “bank runs”, where large numbers of customers withdraw their money simultaneously, potentially collapsing otherwise solvent situations. The Fed acts as a stabilizing force during crises by injecting liquidity into the system. If this function is eliminated, distress at one bank or in one part of the financial system could spread more easily, potentially triggering a broader financial panic. This could lead to systemic crises similar to the Great Depression or the 2008 financial crisis.

Winfree then presents a number of proposals for limiting the power of the Federal Reserve’s role, in the absence of abolishing it entirely (in decreasing order of preference/effectiveness.)

“Free Banking. In free banking, neither interest rates nor the supply of money is controlled by the government. The Federal Reserve is effectively abolished, and the Department of the Treasury largely limits itself to handling the government’s money.” (Project 2025, Section 4.4: Federal Reserve, Paul Winfree, page 768, paragraph 3.)

Free banking refers to a system where private banks operate without central bank oversight or regulation, such as the Federal Reserve. In this system, banks issue their own currency (notes) backed by reserves like gold or other assets, and market forces regulate the banking system rather than a centralized authority.

The pros include increased market discipline (banks would be incentivized to behave prudently), reduced government control over the economy, currency flexibility (banks issuing currency based on different assets, such as gold or real estate), and potential for innovation in financial products and payment systems.

The cons include bank runs, instability, fragmented currency, inefficiency, increased vulnerability to prolonged recessions (in the absence of coordinated monetary policy), increased potential for fraud due to inadequate regulations, and economic chaos.

Izabella Kaminska writes, “The main issue I have with [free-banking enthusiasts] is that they appear to have no understanding or appreciation of the cyclicality of systems or the fact that whenever we’ve had free-banking systems they’ve resulted in chaos or alternatively co-beneficial collusion to the point the system is not free by the standard definition of free.” [Source].²

She continues, “They also think it’s a perfectly logical proposition to have people reconcile all scams and fraud on an ex post-facto basis via private arbitration. i.e., they don’t think people should be protected by laws or promises of recourse to higher bodies.

To me this is nuts for two reasons: 1) ex post-facto justice is usually a luxury that only the elite can afford, or in the best-case scenario is provided to the poor only if large amounts of them are ripped off in the same way, allowing for a class action suit. 2) are they really trying to tell us that it’s better for society to implement punishment on a post-facto basis only and forget about prevention?”

“Commodity-Backed Money. For most of U.S. history, the dollar was defined in terms of both gold and silver. The problem was that when the legal price differed from the market price, the artificially undervalued currency would disappear from circulation. There were times, for instance, when this mechanism put the U.S. on a de facto silver standard. However, as a result, inflation was limited.” (Project 2025, Section 4.4: Federal Reserve, Paul Winfree, page 769, paragraph 4.)

The pros of returning to a commodity-backed system include inflation control (commodity-backed currencies tend to maintain their value better over time because they’re tied to a finite resource), predictability, it limits government spending (by limiting the ability to engage in excessive borrowing and spending), prevents overproduction of money, and the public tends to like intrinsic value (money backed by something real and tangible.)

The cons include restricting economic growth (because the money supply is constrained by the amount of the commodity available), risk of deflation and economic recessions (deflation leads to debt becoming more burdensome, because your money isn’t worth as much), resource dependency (because the commodity has to be produced), logistical challenges (storage and transport of physical commodities, as well as less efficient transactions), reduced flexibility in monetary policy (limits the ability of the government to respond to financial and economic crises), and more.

The gold standard was abandoned in 1933. According to a 2012 survey of 39 economists, the vast majority (92 percent) agreed that a return to the gold standard would not improve price-stability and employment outcomes, and two-thirds of economic historians surveyed in the mid-1990s rejected the idea that the gold standard “was effective in stabilizing prices and moderating business-cycle fluctuations during the nineteenth century.” The consensus view among economists is that the gold standard helped prolong and deepen the Great Depression. [Source]³

“K-Percent Rule. Under this rule, proposed by Milton Friedman in 1960, the Federal Reserve would create money at a fixed rate—say 3 percent per year. By offering the inflation benefits of gold without the potential disruption to the financial system, a K-Percent Rule could be a more politically viable alternative to gold.” (Project 2025, Section 4.4: Federal Reserve, Paul Winfree, page 770, paragraph 5.)

The K-percent rule refers to a monetary policy framework where the central bank increases the money supply at a fixed percentage rate (K) annually, regardless of current economic conditions or other factors.

The pros include that it’s simple and predictable, can help prevent hyperinflation, helps stabilize price levels, and has a reduced risk of political influence. A consistent increase in the money supply can also facilitate long-term economic growth (because businesses can rely on stable monetary conditions to make decisions.)

The cons include a lack of flexibility and ability to respond to changing economic conditions, inability to address crises or economic shocks, potential for mismatched supply and demand (a fixed growth rate might not actually align with the real demand for money, leading to either inflation (if demand outpaces supply), or deflation (if supply exceeds demand.)) Determining the optimal percentage increase can be difficult to calibrate, and an incorrect choice can lead to inflation/deflation as well.

Economist David Glasner writes, “So Friedman’s K-percent rule was dumb, really dumb. It was dumb, because it induced expectations that made it unsustainable. As Hayek observed, not only was the theory clear, but it was confirmed by the historical evidence from the nineteenth century. Unfortunately, it had to be reconfirmed one more time in 1982 before the Fed abandoned its own misguided attempt to implement a modified version of the Friedman rule.” [Source]⁴

Winfree seems to misunderstand the rule in his writing, saying that the K-percent “could change according to political pressures or random economic fluctuations.” (page 770, paragraph 6.) That’s not accurate. Literally the whole point of the K-percent rule is that it’s a constant, although the concept does propose to set the money supply growth at a rate equal to the growth of the GDP each year (which fluctuates.) It shouldn’t, however, be subject to political pressure.

“Inflation-Targeting Rules. Inflation targeting is the current de facto Federal Reserve rule. Under inflation targeting, the Federal Reserve chooses a target inflation rate—essentially the highest it thinks the public will accept—and then tries to engineer the money supply to achieve that goal.” (Project 2025, Section 4.4: Federal Reserve, Paul Winfree, page 771, paragraph 2.)

This statement is mostly accurate. The Fed doesn’t choose the “highest” inflation rate it thinks the public will accept. A more precise description would be that the Fed sets a specific target inflation rate (commonly 2%) based on its assessment of optimal economic conditions, rather than the “highest acceptable rate.” This target aims to promote price stability while allowing for moderate economic growth.

The pros of inflation targeting include clear objectives (transparent monetary policy decisions), accountability (by committing to a specific inflation target, the Fed can more easily be held accountable for its performance), stability, flexibility (ability to adjust based on economic conditions), and increased control over inflation.

The cons include neglect of economic indicators other than inflation (such as unemployment or economic growth), inability to respond quickly and stabilize the economy during crises, challenges in measuring inflation (which potentially leads to bad data, which leads to making bad decisions), and delayed effect (changes in monetary policy take a long time to influence inflation.)

Gillitzer and Simon argued in a September 2015 research paper⁵ that inflation targeting was “A victim of its own success”, and suggested an evolution in its practices. From the introduction:

“Despite one of the largest global recessions in decades during the financial crisis, global inflation barely budged. In some respects, this could be seen as a triumph for inflation targeting—inflation remained close to target despite some of the largest economic shocks in living memory. In the eyes of some, however, the financial crisis has demonstrated the weaknesses of inflation targeting. It has been argued that, in the face of record levels of unemployment in many economies, central banks should weigh unemployment outcomes more heavily in their objectives. There have also been arguments that central banks, in responding to imported inflation shocks while domestic demand remains depressed, or focusing on low headline inflation while asset prices were accelerating, have focused on inappropriate or misleading inflation measures.

This paper makes the argument that these two, seemingly contradictory, outcomes are a reflection of the general success of inflation targeting. Like a vaccination program, once the disease is effectively conquered, people begin to question the value of vaccination. This means that the communication challenges for central banks are magnified, but it doesn’t necessarily mean that the vaccination program itself, inflation targeting, needs to be fundamentally reengineered.”

“Inflation and Growth–Targeting Rules. Inflation and growth targeting is a popular proposal for reforming the Federal Reserve. Two of the most prominent versions of inflation and growth targeting are a Taylor Rule and Nominal GDP (NGDP) Targeting. Both offer similar costs and benefits.” (Project 2025, Section 4.4: Federal Reserve, Paul Winfree, page 771, paragraph 3.)

The Taylor Rule is a monetary policy guideline used to help central banks, like the Federal Reserve, set interest rates in response to changes in inflation and economic output. It provides a formula that adjusts the nominal interest rate based on inflation (difference between actual inflation and the target inflation rate), and the output gap (difference between actual economic output (GDP) and potential output (the economy’s maximum sustainable output.))

You can write the Taylor rule formulaically like this: r = p + 0.5y + 0.5(p – 2) + 2.

• r = nominal interest rate
• p = the rate of inflation
• y = the percent deviation between the current real GDP and the long-term trend in GDP 

Source: MasterClass⁶

The pros are that it’s simple and predictable, helps stabilize both prices and the economy, and reduces political influence.

The cons are that it doesn’t capture all relavant factors of a complex economy, and isn’t flexible enough to respond to crises or unusual conditions.

Economist and former Chairman of the Fed Ben Bernanke had both praises and criticisms of the Taylor Rule.⁷

Nominal GDP targeting is a monetary policy framework where the central bank aims to stabilize the growth rate of nominal GDP (total economic output unadjusted for inflation). Instead of focusing on inflation or unemployment separately, the central bank targets the sum of real GDP growth and inflation. If nominal GDP is too low (below target), the central bank would lower interest rates or increase the money supply to stimulate the economy. If nominal GDP is too high (above target), the central bank would tighten monetary policy (raise interest rates or reduce the money supply) to cool the economy.

The pros of NGDP targeting is that it’s flexible, balances inflation with growth (leading to stability in inflation and output), and can automatically provide stimulus during recessions and tighten policy during booms.

The cons are that real-time data on GDP often lags, making it difficult to target accurately in the short-term, and it’s a less established practice than inflation targeting, making it potentially harder to adapt to.

James A. Dorn wrote a case for NGDP Targeting in 2022⁸, partially refuting the criticism of Fed Chair Jerome Powell on the subject. Reading it would provide you with an idea of both sides of that proposal.

Now, we’re on to the “minimum effective reforms” suggestions:

“Eliminate “full employment” from the Fed’s mandate, requiring it to focus on price stability alone.” (Project 2025, Section 4.4: Federal Reserve, Paul Winfree, page 772, first bulleted point.)

We discussed this above – in a nutshell, eliminating the dual mandate and focusing only on price stability would likely result in more aggressive inflation control but at the cost of higher unemployment, slower economic growth, and reduced focus on job creation.

“Focus any regulatory activities on maintaining bank capital adequacy. Elected officials must clamp down on the Fed’s incorporation of environmental, social, and governance factors into its mandate, including by amending its financial stability mandate.” (Project 2025, Section 4.4: Federal Reserve, Paul Winfree, page 772, third bulleted point.)

This is a thickly veiled argument for bank deregulation which eliminates the focus on climate-related economic risks. As the climate worsens, disasters like Hurrican Helene will occur more often, and these are enormously expensive to mitigate (although Project 2025 doesn’t care about that part – they proposed in Section 2.2⁹ to leave disaster relief funding up to the states, which would lead to much higher state taxes, reduced response capabilities, and more.)