The Federal Reserve may go against Trump’s interests (but in the economy’s favor) by cutting interest rates soon.
In another burst of authoritarianism, former US President Donald Trump said he would want a say in how the Federal Reserve operates if reelected. Donald Trump is the Republican nominee for the 2024 US elections that will be held on November 5th.
“I feel the president should have at least say in there, yeah,” Trump said at a press conference on Thursday. “I feel that strongly. I think that, in my case, I made a lot of money. I was very successful. And I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman.”
The Federal Reserve is an independent body that controls the United States’ monetary policy. Among other things, the Fed controls the liquidity and value of the US dollar and can raise or lower interest rates to sway inflation.
The Fed’s chairman is appointed by the President of the United States and confirmed by the Senate. The chairman’s term lasts 4 years and can be extended. The chairman presides over a board of seven governors, all appointed by the POTUS, each serving a 14-year term.
The independence of the Federal Reserve is not constitutionally guaranteed, but it’s heavily implied in the legislature governing it. The Fed’s independence is essential to separate politics from the economic well-being of the nation.
Though other US presidents tried to exert power over the Federal Reserve, including Richard Nixon and Ronald Reagan, none was as explicit as Donald Trump
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Trump’s plan to weaken the US dollar
Trump’s beef with the Fed
Jerome Powell, the current chairman, was appointed by Donald Trump in 2018. His term was extended in 2022 by Joe Biden and is set to expire in 2026.
Under Powell, the Federal Reserve massively raised interest rates to fight 40-year high inflation. The Fed brought rates to a 23-year high of 5.25% in July 2023 and kept them at the same level since.
The high interest rates started putting a toll on the US economy, with unemployment rising slightly in recent months.
Markets, however, widely expect the Federal Reserve to start cutting interest rates in September. That would be a massive boost for the Democratic ticket, as it would mark a psychological victory against inflation.
For this reason, Trump urged the Fed to wait until after the election to cut rates. That would considered a big mistake by economists, as the recent market crash testified. Elections aside, the economy is ripe for a market cut.
Knowing the Fed will go against his interests, Donald Trump is now calling for more presidential control over it. Trump threatened to remove Powell as chairman if he wasn’t “doing the right thing”, the former president said in a Bloomberg interview.
The removal of the chairman of the Federal Reserve has never been challenged in court and would be totally unprecedented. It would also likely wreak havoc in the markets, especially if Wall Street considered the new chairman as too politically attached.
