Former President Donald Trump made waves this week by stating he would not reappoint Jerome Powell as Federal Reserve Chair if elected again in 2024. Trump accused Powell, who he himself appointed in 2018, of being too “political” in his recent decisions to cut interest rates to boost the economy. This latest attack raises questions about the Fed’s independence and casts uncertainty on its future leadership.
Trump Claims Rate Cuts Meant to Help Democrats in 2024 Election
In interviews with Fox Business and other outlets, Trump asserted that the Fed and Powell have become far too political. He specifically criticized Powell for pledging to keep interest rates low through 2023. Trump believes these rate cuts are meant to stimulate the economy right before the next presidential election, solely to boost the Democrats’ chances (Business Insider, Fortune).
“I wouldn’t reappoint him because he’s political and he’s partisan and he wasn’t supposed to be,” Trump stated on Fox Business.
Trump warned that keeping rates so low for so long could spark “massive inflation” down the road. However, he sees partisan motives in Powell going down that path anyway (Benzinga).
Trump and Powell Have Had Turbulent Relationship
Trump’s latest criticism represents just the newest salvo against Powell. Their relationship has always been rocky, despite Trump appointing Powell himself back in 2018.
At that time, Trump praised Powell as “strong,” “committed,” and “smart” (CNBC). However, Trump soon soured on Powell as he raised interest rates seven times during 2018-2019. He angrily tweeted that the rate hikes were undercutting his economic plans.
By 2020, Trump was bashing Powell as an “enemy” worse than China. He asked if Powell was a bigger enemy than Xi Jinping. Trump also blamed Powell for the 2020 stock market crash and said he had the “horrendous lack of vision” (NBC News).
|Trump appoints Powell as Fed Chair
|Powell raises rates 7 times, drawing Trump’s ire
|Trump calls Powell “enemy,” blames him for market crash
|Powell pledges low rates into 2023, triggering new Trump attacks
Trump’s Comments Seen as Threat to Fed Independence
Many analysts see Trump’s latest attacks as a threat to the Federal Reserve’s independence. The Fed is supposed to set monetary policy free from political pressure. However, Trump is clearly pressuring Powell to keep rates low for partisan reasons.
His declaration that he would fire Powell “in two seconds” if reelected reinforces that threat. Trump is effectively warning Powell – keep rates low through 2024 or you’ll lose your job (CNBC).
“Mr. Trump is again seeking to undermine perceptions of the Fed’s political independence,” said economist Paul Ashworth (FT).
Many experts argue that the Federal Reserve has already lost credibility under Trump’s repeated interference. This latest assault will only weaken confidence further that the central bank can resist political meddling.
Uncertainty Now Surrounds Fed Leadership in 2025 and Beyond
Perhaps the biggest impact of Trump’s comments is that they cast major uncertainty on the future leadership of the Federal Reserve.
Powell’s current term expires in 2026. If Trump wins back the White House in 2024, he has plainly stated he will not reappoint Powell. This refusal would break decades of precedent where Fed Chairs are usually renominated regardless of partisan politics.
Trump did not name a potential replacement for Powell. However, analysts worry he could nominate a loyal partisan who would bow to his demands to always keep rates low (Fortune). This risks politicizing the Fed and threatening its independence even more.
“Trump’s comments underscore the uncertainty over the leadership of the Fed beginning in 2025,” said Wells Fargo economist Sarah House. “There are still risks any nominee could face pressure to keep policy too easy” (Reuters).
So while Powell still has over a year left in his term, the question now hanging over the Fed is what comes next. That uncertainty could constrain the central bank’s decision-making even before 2025.
Powell and Fed Unlikely to Change Course for Now
In the immediate wake of Trump’s attacks, Powell and the Fed are unlikely to shift monetary policy. The central bank just decided to downshift rate hikes at its January 2023 meeting. Most analysts expect them to follow through on keeping rates low for the time being (AP News).
However, there may be subtle impacts. Fed governors could hesitate to take any action that appears partisan or political ahead of the 2024 election. This includes both keeping rates low and also rapidly hiking rates. The Fed could opt to tread very carefully through late 2024.
Some strategists argue Powell has already been cowed by Trump’s yearslong pressure campaign against rate hikes (MoneyWeb). The Fed may already be maintaining lower rates than truly warranted out of fear of further enraging Trump and threatening leadership turnover.
Battles Renew Questions on Best Fed Governance Model
Finally, the eruption between Trump and Powell has renewed debates over how the Federal Reserve should be governed.
Under the current model, the President nominates the Fed Chair and Board Governors while Congress approves the nominations. This process has usually allowed for nonpartisan appointments focused on expertise rather than ideology or loyalty.
However, there have always been risks of growing politicization. Those risks may now be coming to pass under Trump’s sustained pressure on the Fed. His willingness to attack and remove Powell undermines the idea of Fed independence.
Some economists argue the solution to better shield the Fed is to avoid partisan appointments altogether. Alternatives like having the Fed’s Board select its own members or nonpartisan expert commissions nominate governors could depoliticize the central bank (Brookings). But for now, as long as Presidents nominate Fed Chairs, the risk of partisan influence endures.
So while the Fed still officially has sole control of monetary policy decisions, its autonomy looks increasingly fragile in the face of Trump’s onslaught. That may end up permanently altering how independent the central bank can be from whichever party holds the White House.
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