Trump Takes On Establishment: Will the President Extend Grip Over Federal Reserve?
The face-off between Donald Trump and Jerome Powell, appointed as the chair of the Federal Reserve (Fed) in 2018, goes back to when Powell initiated a series of interest rate hikes following Trump's tax reform. things turned sour when Powell reduced interest rates before the 2020 presidential election, with Trump believing it was a move to support the Biden-Harris team. Post-inauguration, Trump complained that the Fed was denying his requests for rate cuts, even as the European Central Bank had done so thrice.
Removing members of the Fed's Board of Governors, including the chair, is challenging due to the Federal Reserve Act that only allows dismissal for cause, interpreted as a serious breach or abuse of authority. This legal restraint makes it difficult for presidents to get rid of appointees who don't toe the political line.
U.S. presidents have historically tried to exercise influence over the Fed and other independent agencies, with varying success. For instance, in 1933, Franklin Roosevelt dismissed William Humphrey, a member of the Federal Trade Commission, for disagreements with the administration's political course. However, the Supreme Court ruled in the Humphrey's Executor v. United States case that the president cannot fire members of independent regulatory agencies without substantial cause. This decision set a legal precedent that remains important in protecting the Fed and other agencies from political pressure.
Attempts to sway the Fed's head did not stop, as can be seen in President Lyndon Johnson's reprimand of Federal Reserve Chairman William Martin in 1965 or Richard Nixon's pressure on Arthur Burns in the 1970s. Nevertheless, previous presidents did not significantly challenge the status quo regarding independent agencies.
Interestingly, Trump fired several officials protected by the "Humphrey precedent" after his inauguration. These include Gwynne Wilcox, Kate Harris, Susan Grundmann, Álvaro Bedoya, and Rebecca Sloter. As anticipated, their cases reached the Supreme Court, which temporarily allowed the president to dismiss Wilcox and Harris in April 2025. The final decision in the Wilcox case is yet to be made, with the current Supreme Court composition considered conservative, increasing the risk of the "Humphrey precedent" being repealed or weakened.
Central bank independence is important as numerous studies show that it leads to long-term inflation reduction, contributes to macroeconomic stability, and can boost economic growth rates. However, a growing budget deficit and public debt may shift the model from "monetary dominance" to "fiscal dominance," where the central bank is subservient to fiscal policy interests, potentially leading to stagflation or hyperinflation.
Trump can replace Jerome Powell in May 2026, but significantly influencing Fed policy might require reshaping the balance of power in the Federal Open Market Committee (FOMC) within a year. To achieve this without entangling in complex legal disputes, Trump could start the approval process for a new Fed chair and two Board members, add three "Republicans" to the current two, and engage with regional Fed bank presidents whose five-year terms expire in February 2026. For now, Trump can keep the pressure on Powell through angry tweets.
In the midst of war-and-conflicts of politics and policy-and-legislation, U.S. presidents have historically attempted to exert influence over the Federal Reserve (Fed), an independent agency, as seen with Donald Trump's attempts to sway the Fed's head, Jerome Powell. Despite the legal restraints set by the Federal Reserve Act and the precedent established in the Humphrey's Executor v. United States case, Trump fired several Fed officials protected by this precedent, revealing a persistent struggle between the executive branch and the independent agencies in the realm of general-news.
