TOO LATE Act Creates Firing Trigger for Fed Chair Based on Quarterly Interest Rate Misses

The aptly named Timely Oversight of Operations, Liquidity, Accountability, Targeting, and Effectiveness Act—or the TOO LATE Act—is a major shift in how the Federal Reserve Chairman operates. This bill introduces a specific, data-driven trigger that allows the President to fire the Fed Chair, potentially politicizing a role traditionally known for its independence. Essentially, the President gains the power to remove the Chair if the Fed’s main interest rate target is too far off the mark for too long.

The New Economic Performance Review

Right now, the Fed Chair serves a fixed term and is generally insulated from political pressure to ensure long-term economic stability. This bill changes that by adding a specific economic performance trigger for removal. If the Federal funds target rate—that’s the highest limit of the range the Fed sets for short-term borrowing—deviates by more than 200 basis points (a full 2 percentage points) from a set of economic benchmarks for two consecutive quarters, the President can step in. This means the Chair’s job security is now tied directly to meeting complex, short-term rate targets.

Benchmarks: The Measuring Stick

So, what are these benchmarks? They are complex economic calculations that determine what the interest rate should have been. The bill requires comparing the Fed’s rate against two measures: first, an inflation measure based on the Implicit Price Deflator for Personal Consumption Expenditures (PCE), and second, an interest rate spread involving 5-year Treasury bonds and 5-year Treasury Inflation-Protected Securities (TIPS). If the Fed Chair’s actual rate is more than two points away from what these formulas suggest for six months straight, the clock starts ticking. This is a big deal because the 'right' interest rate is always a subject of intense debate among economists; now, it’s a firing offense.

What This Means for Your Wallet and Job

When the Fed is independent, it can make tough, sometimes unpopular decisions—like raising rates to cool down inflation—knowing the Chair won’t be immediately fired for causing a temporary slowdown. This bill introduces massive pressure to keep rates within a narrow, politically defined corridor. For you, the consumer or business owner, this means the Fed might be less likely to make the hard, long-term policy moves needed to stabilize the economy if those moves risk crossing the 2% deviation threshold. If the Fed starts focusing on short-term political benchmarks rather than long-term stability, we could see more volatility in interest rates, which directly impacts mortgage rates, car loans, and business borrowing costs.

The Public Firing and Congressional Hearings

If the trigger is pulled, the process is highly public. The President must issue a detailed statement explaining the removal, citing the specific benchmark data and the perceived failures in monetary policy. This statement goes straight to Congress and is made public immediately. Then, within 30 days, both the House and Senate financial committees must hold mandatory hearings on the justification. While this process adds transparency, it also turns a critical, technical monetary policy decision into a high-stakes political spectacle. For financial markets and the general economy, this kind of instability around the central bank’s leadership is often seen as a major risk, potentially leading to market jitters every time the Fed sets its rate.