Donald Trump's allies are quietly drafting proposals that would attempt to erode the Federal Reserve's independence if the former president wins a second term, with some advisers arguing that the president should be consulted on interest-rate decisions
Donald Trump's allies are quietly drafting proposals that would attempt to erode the Federal Reserve's independence if the former president wins a second term, with some advisers arguing that the president should be consulted on interest-rate decisions, per WSJ.
A small group of allies of the former president has drafted a nearly 10-page document outlining a policy vision for the central bank, as reported. The group suggests that Trump should be consulted on rate decisions and should have the authority to remove Jerome Powell as Fed Chair before his term ends in 2026.
Trump appointed Powell in 2017 to lead the U.S. central bank but later soured on him. In February, Trump stated that he would not reappoint Powell, alleging that the Fed chief would lower interest rates to benefit President Joe Biden's re-election prospects.
While the Journal could not confirm whether the former president was aware of or endorsed the effort, some individuals close to the discussions believe it has received his approval. Trump has informally discussed potential candidates to lead the Fed and has inquired with associates about their interest in the position.
The Trump campaign sought to downplay the report on Friday, sharing a previous statement with Reuters in response. The statement emphasized that unless a message comes directly from President Trump or an authorized member of his campaign team, no future presidential staffing or policy announcements should be considered official.
While the likelihood of such a plan coming to fruition in whole or in part is remote, the idea of Trump exerting significant influence over Fed policy decisions, which greatly impact the world's largest economy and global asset markets, has been gaining attention. The Fed's ability to set monetary policy independently, without political interference, is a key support for the U.S. dollar's status as the world's reserve currency. This status allows the U.S. government to borrow on global bond markets at relatively low interest rates despite its substantial $26 trillion debt load, known as the "exorbitant privilege."
Nathan Sheets, Citigroup Global Chief Economist and former under secretary for international affairs for the U.S. Treasury under Trump's predecessor, Democrat Barack Obama, expressed concern about the potential erosion of Fed independence. He warned that any policy change that significantly weakened Fed independence would be met with strong market backlash and volatility. Sheets believes that the gains a political actor might seek from such a move would be outweighed by the potential costs, making it a risky endeavor.