Former and present officials warned the President-elect about Federal Reserve meddling.
According to the Financial Times (FT), current and former officials have warned Trump against weakening the Fed’s authority in his second term. President-elect Trump has declared his desire to influence Fed decisions, particularly interest rate decreases.
The legislators worried that Trump’s Fed meddling may disrupt the U.S. economy and global financial markets. In 2017, Trump called Powell a “enemy” and “clueless” for rejecting his interest rate cuts, according to the FT.
On Thursday, Fed Chair Powell warned President-elect Trump that his proposed tariffs, mass deportation, and tax cuts might cause price pressures. The FOMC had recently trimmed rates by a quarter-point to 4.5%-4.75%.
Reuters reports that the Fed will confront a hostile White House despite falling inflation to 2.4% and unemployment at 4.1%. Trump’s alleged actions and influence undermined these Fed successes. The primary issue is that Trump indirectly threatened the Fed’s independence.
Bloomberg claimed that Trump’s aides advised him against firing or demoting Powell due to legal restrictions. Powell declared he would not resign if asked. Powell’s 14-year governorship ends in 2028, while his Fed chairship ends in 2026.
Reuters stated that Trump agreed with Nixon that the Fed should heed his ideas. “I don’t believe I should be permitted to order it, but I think I can remark on whether interest rates should go up or down.”
According to the FT, Trump’s aides cautioned him that rumors that he may pick a Fed sycophant for his personal gain were concerning. They thought such rumors increased stagflation risk.
The president could only nominate Fed officials. The Senate must also approve the president’s Fed governor, chair, and vice chair nominees.
Legally firing ‘non-compliant’ Fed officials is difficult, and both Republican and Democrat administrations have failed. Presidents of both parties have failed to influence the Fed via public and private pressure.
Powell said the Fed was apolitical and examined solely economic matters. He said legislators on both sides of the aisle backed Fed independence.
Long-term economic growth would be better if consumers and investors trusted the Fed to act without political interference.
