As Donald Trump prepares for his return to the White House, one question looms large over the financial world: Will the Federal Reserve (the Fed) maintain its independence under his leadership? Trump’s history with the central bank, his sharp criticism of Chairman Jerome Powell, and his unconventional views on monetary policy suggest that the relationship between the White House and the Fed will once again face intense scrutiny.
Trump’s History with the Fed: A Troubled Relationship
During his first term, Donald Trump made no secret of his dissatisfaction with the Fed and Jerome Powell, the chairman he appointed in 2018. Trump criticized Powell publicly, calling him a “bonehead” and an “enemy,” and frequently lambasted the Fed for not cutting interest rates more aggressively. At one point, Trump even suggested he had the authority to demote Powell, saying, “I have the right to remove him. I have the right also to take him and put him in a regular position and put somebody else in charge, and I haven’t made any decisions on that.” While no such move was ever made, the repeated threats left a lasting impression on observers of U.S. monetary policy.
Trump’s criticism of the Fed wasn’t limited to Powell. In interviews, he expressed frustration with the entire institution, once remarking, “Running the central bank is the greatest job in government: Show up once a month, flip a coin to set interest rates, and be treated like a god.” This mockery highlighted his view that the Fed’s decisions were arbitrary and disconnected from real economic needs.
How Trump Could Exert Control Over the Fed
While Trump cannot outright fire Jerome Powell as Fed Chair, he does have several tools at his disposal to exert control over the central bank. Most significantly, he can appoint new board members as vacancies arise. The term of Fed Governor Adriana Kugler, for example, expires in January 2026, giving Trump an early opportunity to reshape the Board of Governors. If Powell’s term as chair expires in May 2026, Trump will also have the authority to replace him with someone more aligned with his views.
Scott Bessent, Trump’s nominee for Treasury Secretary, has suggested another approach: appointing a ‘shadow chairman’ to publicly contradict Powell and undermine his authority. Economist Alan Blinder paints a grim picture of this scenario: “Imagine the dynamic. Every time Powell offers forward guidance or speaks on the state of the economy, the shadow chairman could take to the media to contradict him. How much independence would that leave the Fed?”
Furthermore, legal experts Benn Steil and Elisabeth Harding point out a peculiar legislative loophole: While the Federal Open Market Committee (FOMC) sets interest rates, the Fed’s Board of Governors—whose members are all presidential appointees—controls interest paid on bank reserves. This means Trump could theoretically influence monetary policy by directing the Board to act against the FOMC’s decisions.
What Might Trump Want the Fed to Do?
Historically, Trump has pushed for lower interest rates, believing they stimulate economic growth and boost his political standing. During his presidency, he argued that rates should have been cut faster and deeper, saying, “Obama had zero interest rates. I should have the same.” More recently, Trump has claimed he should have a role in rate-setting decisions, stating, “I think I’m better than most people would be in that position. I think I have the right to say, ‘I think you should go up or down a little bit.’”
If Trump appoints loyalists to the Fed, they may prioritize short-term economic growth over long-term stability. This raises fears of inflation spiraling out of control, similar to the Arthur Burns era under President Nixon. As Tom Nichols warns, “That’s incredibly dangerous because then the rest of the world says, ‘Well, I guess the United States isn’t really a functioning economy. It’s just an autocracy where the value of goods and the value of the dollar are basically set by this ignorant authoritarian.'”
Jerome Powell’s Confidence in Fed Independence
Despite these concerns, Jerome Powell remains outwardly confident that the Fed’s independence is secure. Speaking at the New York Times DealBook Summit, Powell stated, “There are safeguards in the congressional legislation that created the Fed that will help preserve it from political influences.” He emphasized that the Fed’s dual mandate—maximum employment and price stability—is protected by law and cannot be overturned by political pressure.
Powell also pointed out broad congressional support for the Fed’s independence, saying, “There is very, very broad support for that set of ideas in Congress in both political parties on both sides of the Hill.”
However, Alan Blinder remains skeptical. “If Trump gets elected president again, I think the political independence of the Federal Reserve goes right out the window,” he warned.
Expert Opinions: A Divided Outlook
Wendy Edelberg of the Brookings Institution fears Trump’s approach could have devastating long-term consequences. “Credibility is easy to lose and really hard to get back. If the Fed loses its credibility, interest rates will rise across the board as a penalty for the Fed’s perceived weakness,” she explained.
Meanwhile, strategist Liz Schleif takes a more optimistic view, suggesting the Fed is used to political pressure. “The Fed’s very clear that Congress has given them the dual mandate to focus on employment and price stability, and that’s where the Fed’s gonna keep its focus.”
What’s at Stake for Americans?
The independence of the Federal Reserve is not just an abstract policy concern; it directly affects ordinary Americans. If the Fed’s independence is undermined and inflation spirals, everyday costs will rise, and borrowing money will become more expensive. Alan Blinder paints a vivid picture: “That guy shoveling snow in Iowa, if he wants to borrow to buy a house or a car, will be paying higher interest rates as his share of the penalty for the Fed’s loss of credibility.”
The Fed’s independence has been a cornerstone of U.S. economic stability since the Treasury-Fed Accord of 1951. However, Trump’s return to power could mark a turning point. Whether he resorts to public criticism, installs a shadow chairman, or exploits legal loopholes, the risks are undeniable.
Alan Greenspan once said, “If the Federal Reserve’s monetary policy decisions were subject to congressional or presidential override, short-term political forces would soon dominate, unleashing inflationary forces and inflicting severe damage on our economy.”
FAM Editor: We believe that Powell is toast, that one way or another he will lose his seat. Trump has learned his lesson and is surrounding himself with loyalists this time.