Now, Trump’s team is eyeing a new pressure point — a reported $700 million cost overrun in the Federal Reserve building’s renovation — in a possible bid to corner Powell during his final year as chair. Whether it works is another matter. Powell has weathered Trump’s storms before.
When Trump chose Powell over Janet Yellen in late 2017, he praised him as “strong, committed, smart,” and someone who would give the Fed “the leadership it needs in the years to come.” But just six months into Powell’s tenure, Trump had already turned against him.
A lawyer by training and not an economist, Powell was expected to align with Trump’s low-interest-rate agenda — helping fuel growth, prop up markets, and boost re-election hopes. But Powell proved independent. By August 2018, Trump was blasting the Fed as “crazy,” “loco,” and “gone wild,” telling The Wall Street Journal, “(Powell) was supposed to be a low-interest-rate guy. It’s turned out that he’s not.”
At the heart of the Trump-Powell tussle lies a simple but crucial issue: the cost of money — or interest rates. Governments everywhere want cheap money. When borrowing is easy, businesses are more likely to expand, leading to job creation, GDP growth, booming stock markets — and, in theory, a happy populace.
It is not just limited to Trump. The Chidambaram-Subbarao standoff over interest rates in 2012, RBI governor Urjit Patel’s resignation in 2018, resignations of two Argentine central bank chiefs — Martin Redrado in 2010 and Juan Carlos Fabrega in 2014 (Luis Caputo’s 2018 resignation was under IMF pressure) — and Japanese PM Shinzo Abe’s choice of a “like-minded” central bank governor, Haruhiko Kuroda, in 2013, are all examples of govt’s upper hand.What happened in the past?
In 1969, Nixon picked Arthur Burns to head the Fed. Like Trump, he believed Burns would prove pliant, and just to be sure he told him: “I know there’s the myth of the autonomous Fed…” To ensure everyone else also got this, he declared at Burns’s swearing-in: “I respect his independence. However, I hope that, independently, he will conclude that my views are the ones that should be followed.”Nixon wanted low rates with an eye on the 1972 election, and we know from the “Nixon tapes” that he told Burns in Oct 1971: “Liquidity problem (too much money in the system)… is just bullshit”. Burns obliged. His rate cut stimulated the economy in the short term and handed Nixon a landslide victory, but then caused an inflation problem that lasted a decade, and became the strongest argument for central bank independence (CBI).
Central banks like the RBI and the US Federal Reserve are relatively modern institutions in their current form. Before World War II, they primarily acted as lenders of last resort. It was only after the war that they took on the role of setting interest rates — often under significant government influence.
In India, RBI Governor Benegal Rama Rau resigned in 1957 after a clash with Finance Minister T.T. Krishnamachari. In the US, during the Vietnam War, President Lyndon Johnson famously summoned the Fed chair to his Texas ranch to berate him over monetary policy.
Even economist Milton Friedman, who coined the term “central bank independence” in 1962, didn’t advocate for unchecked power. He believed that governments should define the central bank’s goals, but the banks themselves should be free to pursue those objectives using tools like interest rates — without ongoing interference.
Central bank independence, or CBI, is essential because monetary policy takes time to yield results. It shields institutions from short-term political pressures — and from unpredictable figures like Trump.
Over a century from 1923, CBI has risen around the world. Trinity College professor Davide Romelli’s analysis shows 370 banking reforms across 155 countries — 279 of these increased CBI and 91 reduced it. Globally, the CBI index rose from 0.35 in the 1970s to 0.6 by 2020.
That’s why Trump, when he brought “independent” govt agencies under his thumb with an executive order, made it clear that “This order shall not apply to the Board of Governors of the Federal Reserve System or to the Federal Open Market Committee in its conduct of monetary policy.”
