The United States is in the midst of “a credibility recession,” says Amit Seru, a professor of finance at Stanford Graduate School of Business. The American public’s trust in governmental and financial institutions has eroded. And this, he argues, poses a significant threat to economic stability and growth.
In a series of recent commentaries and comments, Seru has detailed the risks of the growing trust deficit. In Barron’s, he has written about the importance of preserving the independence of the Federal Reserve and the cryptocurrency industry’s quest for trustworthiness. He has spoken with Fortune about the need for more transparency for hedge funds and other “shadow banking” institutions. His analysis of these disparate areas makes the case for why investments and innovation depend on credibility and clarity.
Independent central banks are essential because they provide a buffer between economic policy and political cycles. Without that insulation, monetary policy becomes a tool of short-term electoral politics, not long-term economic health. The Fed’s ability to manage and anchor inflation expectations, stabilize employment, and promote sustainable growth hinges on its credibility. That credibility, in turn, rests on independence. Independence isn’t a luxury — it’s a prerequisite for trust in the institution’s signals.
You point out that the Fed’s credibility underpins the global standing of the U.S. dollar. How could threats to the Fed’s autonomy weaken this trust, and what would be the potential impact of a weakened dollar on the U.S. economy?
When markets suspect that political interference will steer interest rates or bank regulation, the Fed’s signals lose power. Investors start to price in future instability, not policy coherence. Since the U.S. dollar is the global reserve currency, any dent in confidence in the Fed can trigger capital flight, raise borrowing costs, and diminish U.S. leadership in global finance. This isn’t just about short-term volatility. If credibility erodes, the U.S. loses the exorbitant privilege of issuing the world’s safest asset — a structural advantage that underpins its global influence.
You acknowledge that the Fed is “far from perfect.” How would you recommend reforming the Fed while also ensuring its independence?
The Fed is not beyond critique. It was slow to react to inflation after COVID and still struggles with transparency around its dual roles as monetary policymaker and financial regulator. We should reform the Fed — but with surgical precision. That means strengthening internal accountability, improving data transparency, and possibly separating monetary and regulatory functions more cleanly. Undermining independence to correct past mistakes risks politicizing the very institution meant to safeguard long-term stability.
You note that President Donald Trump “may hurt the crypto industry more than help it.” How does his involvement in cryptocurrency potentially undermine its quest for legitimacy?
There’s real irony in the crypto industry’s embrace of Donald Trump as its savior. His track record shows a willingness to bend rules for political loyalty — and an unclear view on financial innovation. Crypto can’t claim to be decentralized while tethering itself to political personalities.
Crypto doesn’t need a hype man. It needs clarity. That means clear definitions of what counts as a security, predictable rules for token issuance and trading, and guidance for how stablecoins and decentralized finance will be supervised. What’s needed is institutional credibility, not populist endorsement. Regulatory clarity is not the enemy of innovation — it’s the foundation for scaling trust.
If clear rules for the crypto industry aren’t forthcoming, how will that affect cryptocurrency’s future as an investment and a financial tool?
Without regulatory clarity, crypto becomes a speculative sideshow — highly volatile, legally precarious, and unusable as a financial tool. The space will fragment, with institutional capital withdrawing and innovation moving offshore. Uncertainty is the enemy of adoption.
What benefits do shadow banking institutions and hedge funds provide by operating outside the traditional banking system?
Shadow banking institutions — like private credit funds and nonbank lenders — can provide flexibility and innovation where traditional banks can’t. They are often first movers where regulation or legacy systems slow banks down. They help allocate capital more efficiently, particularly in underserved segments or when banks are constrained. In that sense, they add a kind of resilience through diversification.
