Former President Donald J. Trump persistently criticized the Federal Reserve and Chairman Jerome H. Powell during his presidency. As he competes with President Biden for his second presidential term, history has left many on Wall Street wondering what a Trump victory would mean for the U.S. central bank.
The Trump campaign does not yet have a detailed plan for the Fed, officials said. But outside advisers have focused more on the central bank and have made some proposals, some trivial, some extreme.
While some around Mr. Trump have called for attempts to limit the Fed's ability to set interest rates independently of the White House, others have strongly opposed the idea, and those close to the campaign said they thought such a drastic effort was necessary. said. It didn't seem likely. Curbing the central bank's ability to set interest rates without direct influence from the White House could be tricky both legally and politically, and tinkering with the Fed too explicitly could shake up the very stock markets that Trump has often used as a metric for his own success. can.
But other aspects of Fed policy could also be in Trump's sights, both former administration officials and conservative policy thinkers have pointed out.
President Trump is poised to once again use public criticism to put pressure on the Federal Reserve. If elected, he will also have the opportunity to appoint a new Federal Reserve chairman in 2026, and has already made clear in public comments that he plans to replace Chairman Powell, who assumed the position before President Biden reappointed him.
“There’s going to be a lot of rhetorical devices thrown at the Fed,” predicts Joseph A. LaVorgna, chief economist at SMBC Nikko Securities America, an informal adviser to the Trump campaign and former chief economist at the National Economic Council during Trump’s presidential campaign. I did. management.
And some of Trump's allies are urging the campaign to consider more substantive changes to the central bank, even institutional changes. The Federal Reserve regulates the nation's largest banks, and President Trump could take steps to give it more control over that process, which could ultimately make regulation less burdensome for financial institutions.
Here's how the Fed currently interacts with the White House and how that could change.
The Federal Reserve is independent from the White House.
The Federal Reserve is responsible for controlling inflation, and it does so by using higher interest rates to slow demand and ease pressure on prices. A sitting president has essentially always favored low interest rates to encourage people to borrow money and stimulate the economy, but he has no say in Fed policy.
Independence exists for an important reason. Higher interest rates could cause short-term economic pain and cost the president a second term. However, sometimes it is necessary to control inflation. Research shows that allowing central banks to set policies based on the economic needs of the country rather than the electoral needs of politicians will enable policymakers to make better choices.
Since the 1990s, White House administrations have largely avoided talking about Federal Reserve policy to respect its independence. But during his presidency, Trump has regularly criticized the Federal Reserve for keeping interest rates too high, calling Powell an “enemy” and the chairman and his colleagues “idiots.”
If President Trump is elected, this situation is likely to continue. He has already indicated that his attempt to lower interest rates before the election would be a political ploy to help his incumbent Democrat. He made similar comments ahead of the 2016 election and then shifted his tune to calling for interest rate cuts after taking office.
Direct efforts to control interest rates may be difficult.
As president, Trump realized that criticizing the Federal Reserve had little effect on changing policy. Officials privately took offense at his comments but publicly ignored them, cutting interest rates lower than Trump wanted.
The biggest question is whether President Trump will go further and try to directly control Federal Reserve policy this time.
The Trump campaign website talks about bringing independent agencies under the president's control (promising to “put unelected bureaucrats back in their place”) but is silent on whether that includes the Federal Reserve.
Legal experts said it could be difficult for the White House to control the Federal Reserve's interest rate policy without passing legislation through Congress. This is the reality that Trump White House Office of Management and Budget Director Russell T. Vought mentioned in an interview with the New York Times last July.
Firing Mr. Powell could also be tricky.
However, the White House can influence monetary policy without directly conducting it, including by appointing leadership.
The president has the opportunity to nominate directors to the Federal Reserve's board of directors in Washington when they leave or their terms expire. These officials account for 7 of the 12 votes on interest rate policy, and the Federal Reserve Chairman, Vice Chairman, and Vice Chairman for Banking Supervision are all White House appointed governors.
All of these roles are currently full, with only two governors expiring by the end of 2028. And Chairman Powell's term does not end until 2026. We can do that again.
In early 2018, President Trump, dissatisfied with Powell's lack of loyalty, considered the possibility of firing the chairman before deciding it would be legally problematic. In 2020, he floated the idea of firing Powell and leaving him simply as one of the Fed's seven presidents, but he never actually tried it.
Some people close to the campaign think firing Mr. Powell could be on the table again, while others have warned that doing so may not be attempted legally and could be challenged in the courts. Moreover, Prime Minister LaBorgna pointed out that if inflation continues, President Trump may criticize the Federal Reserve Chairman.
“There is no incentive to replace the chairs, except for legal reasons,” Mr. LaVorgna said.
President Trump can still use his nomination to sway the Federal Reserve.
However, President Trump made it clear that he had no intention of reappointing Chairman Powell even after his term ended.
President Trump will not be able to nominate just anyone as Chairman Powell's successor. Federal Reserve governors and nominees to leadership positions must be confirmed by the Senate. President Trump has attempted (or considered) appointing Federal Reserve governors who had been loyal to him during his first term, including Judy Shelton, Herman Cain, and Stephen Moore. No one joined the Fed, in part because some senators supported the idea that the Fed should be independent.
Most of the names of potential Fed chairmen being circulated are traditional choices based on economic background and government experience.
Stanford professor and former Federal Reserve governor Kevin Warsh; Kevin Hassett, former Chairman of the Council of Economic Advisers; Current Federal Reserve President Christopher Waller is also mentioned as a potential candidate. But it's still early days, a decision is still far off, and some people have pointed out that the campaign isn't paying much attention to the Fed at this point.
Changes to banking regulations may be discussed.
There are notable exceptions. The Fed's regulations appear to be firmly focused. In an interview with The Times last year, Vought said “at a minimum” the Fed's regulatory functions should be subject to White House review.
And President Trump himself appears to have mentioned plans to deregulate the Federal Reserve in a video posted to his campaign website.
In it, he pledged to sign legislation banning officials from punishing companies for violating rules established through informal guidelines. This is what the Federal Reserve does to banks through its routine supervisory process, and a practice that Randal Quarles, President Trump's vice chairman for banking supervision, has attempted to discourage.
Recently, Republican lawmakers have raised questions about the Fed's climate stress oversight scenario. This scenario is intended to ensure that banks are considering risks such as sea level rise and weather-related insurance payments. Critics worry it could be more difficult and more expensive for oil and gas companies to do so. Funding (something progressive activists have been pushing for)
President Trump appears to have mentioned this in his video, but did not mention the Federal Reserve by name.
“Never again will bureaucrats be allowed to bully and pressure banks to financially deplatform and destroy politically unfavorable industries,” Trump said in the video.
And Republicans are increasingly raising the possibility that the Fed's independence should not extend to bank regulation or the people who lead it.
Christina Parajon Skinner, a central bank legal expert at the University of Pennsylvania, recently began arguing that the president can legally remove the vice chair of Federal Reserve supervision because the vice chair of Federal Reserve supervision has a different role than the Fed chair.
Michael Barr, the Federal Reserve's vice chairman for banking supervision, is scheduled to expire his leadership term in 2026. If Ms. Skinner is right, it may be possible to replace him sooner.
She said she disagreed with “some speculation” that Trump would want to curtail the Federal Reserve’s monetary independence, but thought “financial regulation is an area the administration would be interested in” if Trump wins. .
Jonathan Swan contributed to the report.