President-elect Donald Trump and some of his allies have suggested that he should be allowed to intervene to varying degrees in the Federal Reserve's decisions regarding U.S. monetary policy. There is.
“I have the right to say, 'I think they should go up a little bit or go down a little bit,'” Trump said at an event at the Chicago Economic Club in October, referring to interest rates set by the Federal Reserve. I think so.'' “I don't think I should be allowed to dictate, but I do think I have the right to comment on whether interest rates should be raised or lowered.”
Sen. Mike Lee (R-Utah) went further on X, saying, “The executive branch should be under the direction of the president. That's how the Constitution was written. One of many examples of how far we have strayed from. Another reason we should #EndTheFed.”
Billionaire Elon Musk, who has become an advisor to President Trump, responded to Lee's tweet with “100” emojis.
Putting the Fed under the control of the president would be a big change. The Federal Reserve is an independent agency whose purpose is to make decisions that shape the domestic economy without political interference.
There is no indication that Mr. Trump wants to exercise the kind of control that Mr. Musk and Mr. Lee tweeted, but even the kind of influence that Mr. Trump seems to want may not be possible, at least in the short term. There is a high possibility that it will.
How much influence can President Trump have over the Federal Reserve?
At this point, Trump cannot exert much influence over the Federal Reserve.
When it comes to interest rates, basically the cost of borrowing money, President Trump can complain like any other American that they're too high (or too low), but government officials with the power to adjust interest rates The Fed leaders only charge. The Fed lowered interest rates this year as inflation fell, but has kept rates fairly high for the past few years as part of its pandemic-era inflation-fighting efforts. But even if interest rates are lower, many Americans still feel it's too expensive to borrow money for a big purchase like a home.
Forcing or pressuring the Fed to lower interest rates will not necessarily solve Americans' high borrowing costs. The interest rate set by the Fed is actually a short-term cost that banks pay each other to borrow money. The Fed's decisions affect borrowing costs, but many other factors affect consumer credit.
Additionally, many of President Trump's other policy proposals, such as sweeping tariffs and mass deportations, increase Higher interest rates should help combat inflation. If implemented, these proposals could actually lead to higher inflation.
“If there are big tax cuts, and he wants to increase military spending even more, and he wants to round up millions of undocumented workers, [deport]”It's all going to be very inflationary, as are the import tariffs that President Trump is proposing,” Dean Baker, senior economist at the Center for Economic Policy Research, told Box. “And if you say to the Fed, 'Well, I can't do anything to contain it, because if I do that, I'll be unpopular,' that would be a really bad story.”
Another way President Trump is trying to intervene in Fed matters is by trying to fire Fed Chairman Jerome Powell. President Trump appointed Powell, but he was highly critical of Powell's decision-making during his first term and was reportedly considering the possibility of firing him as Fed chair.
Powell has said he intends to serve out the remainder of his term, which ends in 2026, but has declined to say whether he will seek a third term.
Legally, Trump cannot force Powell to resign or be fired. Members of the Federal Reserve Board, of which Mr. Powell serves as Fed Chairman, can only be fired for misconduct or performance-related reasons, not for policy differences. President Trump could try to fire Powell, claiming that he did not perform well, but that decision would likely depend on a lawsuit involving Franklin Delano Roosevelt when he tried to fire the Fed commissioner. , which will likely embroil the next president in a lengthy legal battle. (And Roosevelt lost.)
The Fed was created by an act of Congress, so any changes to its structure would require Congressional action. Although Congress has made several reforms over the decades, there is currently no indication that most members are willing to challenge the agency's independence.
Jeremy Siegel, a finance professor at the Wharton School at the University of Pennsylvania, told Business Insider that any attempt to thwart the Fed's independence could spill over into the stock market.
“There is no question that, in general, markets do not like any attempt by the executive branch or Congress to interfere with the independence of the Fed,” Siegel said.
But come May 2026, Mr. Trump will have some degree of control over Fed policy, which is granted by Congress. He would then need to appoint a new Fed chairman for a four-year term, which would then need to be confirmed by the Senate. That could be Mr. Powell, or it could be someone more in line with Mr. Trump's idea of what the Fed should be.
