President-elect Donald Trump and some of his allies have suggested to varying degrees that Trump should be allowed to interfere in the Federal Reserve’s decisions about US monetary policy.
“I think I have the right to say, ‘I think you should go a little bit higher or lower,'” Trump said, referring to the Federal Reserve, which sets interest rates, at an October event. Chicago Economic Club. “I don’t think I should be allowed to order it, but I think I have the right to comment on whether interest rates go up or down.”
Sen. Mike Lee (R-Utah) X went further, He claimed, “The executive branch should follow the instructions of the president. This is how the constitution was made. The Federal Reserve is just one of many examples of how we have deviated from the Constitution. Another reason why we should #EndTheFed“
Elon Musk, the billionaire adviser to Trump, responded to Lee’s tweet With a “100” emoji.
Bringing the Federal Reserve under presidential control would be a big change. The Fed is an independent institution intended to make decisions that shape the domestic economy without political interference.
There’s no indication that Trump wants to implement the kind of controls that Musk and Lee have tweeted about, but even the kind of influence he seems to want is unlikely — at least in the short term.
How much can Trump influence the Fed?
Trump can’t sway the Federal Reserve much — for now.
When it comes to interest rates, which are basically how much it costs to borrow money, Trump can complain that they’re too high (or too low) like other Americans, but Fed leaders are the only government officials with the power to adjust them. Rates The Fed has cut interest rates this year as inflation eases but has kept rates fairly high for the past few years to combat pandemic-era inflation. Even with low rates, however, many Americans still find it too expensive to borrow money to make major purchases like a home.
Forcing or pressuring the Fed to lower interest rates will not necessarily fix higher borrowing costs for Americans; Interest rates set by the Fed are actually short-term costs that banks pay each other to borrow money. The Fed’s decision affects the cost of borrowing, however There are many other reasons That goes to consumer credit.
Moreover, many of Trump’s other policy proposals — such as sweeping tariffs or mass deportations — could be growth Inflation, which is supposed to counter higher interest rates. If implemented, these proposals may actually lead to higher inflation.
“If you have big tax cuts, and he wants to spend more on the military, and he’s planning on millions of enlisted personnel. [deport]It’s all going to be very inflationary” with Trump’s proposed tariffs on imports, Dean Baker, senior economist at the Center for Economic and Policy Research, told Vox. “And then if you tell the Fed, ‘Well, you can’t do anything to contain it, because it’s going to make me unpopular,’ that’s going to be a really bad story.”
Trump may try to intervene in Fed affairs by firing Federal Reserve Chair Jerome Powell. Trump hired Powell, but stayed Powell’s decision-making was highly critical In his first term, and purported search Whether he could shoot the Fed chair.
Powell said he would serve the rest of his term, Which won’t end until 2026But he declined to say whether he would seek a third term.
Legally, Trump cannot force Powell to resign or fire him. Members of the Fed’s Board of Governors, Part of which is Powell As the Fed Chair, Can only be fired Due to wrongdoing or performance of work, not difference in policy. Trump could try to fire Powell, claiming he’s doing his job poorly, but that decision will likely embroil the president-elect. Protracted legal battleIt’s like being trapped When Franklin Delano Roosevelt tried to fire a Fed commissioner. (And that Roosevelt lost.)
Because the Federal Reserve was created by an act of Congress, it would take congressional action to make any changes to how it operates. Congress has made some changes over the decades, but there are no signs right now that most lawmakers are willing to challenge the institution’s independence.
Any attempt to interfere with the Fed’s independence could affect the stock market, said Jeremy Siegel, a finance professor at the Wharton School of the University of Pennsylvania. Business Insider.
“In general, there is no question that markets do not like any attempt by the executive or congressional branches to interfere with the independence of the Fed,” Siegel said.
But in May 2026, Trump will be able to say anything Congress approves of Fed policy. That’s when he must appoint a Fed chair for a new four-year term, subject to Senate confirmation. It could be Powell, or someone more aligned with Trump’s idea of what the Fed should be.
