Donald Trump says that the Federal Reserve has "gotten a lot wrong," and "US Presidents should have a say in Fed actions"
Decisions made by the Federal Reserve reflect the most explicit sign yet of former President Donald Trump's interest in challenging the central bank's independence should he return to the White House.
"I believe the president should have at least some say in those matters," Trump stated to reporters at his Mar-a-Lago estate in Florida. "I think that, given my success and financial acumen, I have better instincts than many people who might be on the Federal Reserve or even its chairman."
In April, the Wall Street Journal reported that Trump allies were drafting proposals aimed at undermining the Fed's independence if he were to win the presidency. The Trump campaign distanced itself from this report at the time.
However, Trump's remarks on Thursday align with a key aspect of these proposals: if elected, he would expect to be consulted on interest rate decisions and to review Fed banking regulation proposals.
The Fed Chair and its six board members are nominated by the president and confirmed by the Senate. Nonetheless, the Fed maintains significant operational independence, enabling it to make policy decisions that greatly influence the largest economy in the world and global financial markets.
A major factor supporting the U.S. dollar's status as the world's reserve currency is the Fed's ability to set monetary policy without political interference. This independence helps the U.S. government borrow on global bond markets at relatively low interest rates, despite its $35 trillion debt load, a situation known as the "exorbitant privilege."
The next president—whether Trump or Democratic candidate Kamala Harris—will have the opportunity to select a new Fed Chair within the first two years of their term. One way to intrude on the Fed's independence would be to appoint a nominee who would align with Trump's preferences for the central bank.
Economists express concern that this could lead to policy errors similar to those of the early 1970s, when Fed Chairman Arthur Burns, under pressure from President Richard Nixon, maintained an expansionary monetary policy before the 1972 election despite mounting inflation. By 1974, inflation had surged above 12% and remained a persistent issue until Fed Chairman Paul Volcker curbed it with severe interest rate hikes that caused two early 1980s recessions.
Current Fed Chair Jerome Powell's term as chief runs through 2026, while his board seat lasts until 2028. Powell was appointed to the Fed board by former President Barack Obama but was chosen by Trump to lead the central bank, a role Powell began in early 2018. Trump soon criticized Powell, opposing the interest rate hikes implemented during Powell's initial year.
"I used to have it out with him; I had several strong disagreements with him," Trump said on Thursday. "I fought him very hard."