President-elect Donald Trump and some of his allies have suggested, to varying degrees, that Trump should be allowed to meddle with the Federal Reserveâ€s decisions about US monetary policy.
“I think I have the right to say, â€کI think you should go up or down a little bit,â€â€ Trump said, referring to interest rates, which the Federal Reserve sets, at an October event at the Chicago Economic Club. “I donâ€t think I should be allowed to order it, but I think I have the right to put in comments as to whether or not the interest rates should go up or down.â€
Sen. Mike Lee (R-Utah) went further on X, claiming, “The Executive Branch should be under the direction of the president. Thatâ€s how the Constitution was designed. The Federal Reserve is one of many examples of how weâ€ve deviated from the Constitution in that regard. Yet another reason why we should #EndTheFed.â€
Elon Musk, the billionaire who has become an advisor to Trump, replied to Leeâ€s tweet with a “100†emoji.
Bringing the Federal Reserve under the presidentâ€s control would be a major change. The Fed is an independent institution meant to make decisions that shape the domestic economy without political interference.
Thereâ€s no indication that Trump wants to exert the kind of control that Musk and Lee tweeted about, but even the type of influence he appears to want likely wonâ€t be possible — at least in the short term.
How much can Trump influence the Fed?
Trump canâ€t influence the Federal Reserve much — for right now.
When it comes to interest rates, which are basically how much it costs to borrow money, Trump can complain they are too high (or too low) like any other American, but the Fedâ€s leaders are the only government officials with the power to adjust those rates. The Fed has lowered interest rates this year as inflation has declined but it kept rates fairly high for the last few years, in part to fight pandemic-era inflation. Even with the lower rates, however, many Americans are still finding it too expensive to borrow money so they can make big purchases like a home.
Forcing or pressuring the Fed to lower interest rates wonâ€t necessarily fix high borrowing costs for Americans; the interest rates set by the Fed are actually short-term costs that banks pay to each other to borrow money. The Fedâ€s decisions influence the cost of borrowing, but there are a lot of other factors that go into consumer credit.
Furthermore, many of Trumpâ€s other policy proposals — like broad tariffs or mass deportation — could increase inflation, which higher interest rates are supposed to combat. If implemented, these proposals could actually lead to higher inflation.
“If you have big tax cuts, and he wants to spend more on the military, and is rounding up however many millions of undocumented workers he plans to [deport], thatâ€s all going to be very inflationary†as will Trumpâ€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, â€کWell, you canâ€t do anything to try and contain it, because that would make me unpopular,†Thatâ€s going to be a really bad story.â€
One other way Trump might try to meddle in the Fedâ€s affairs is by trying to fire Federal Reserve Chair Jerome Powell. Trump appointed Powell, but was highly critical of Powellâ€s decision-making during his first term, and reportedly looked into whether he could fire the Fed chair.
Powell has stated that he will serve through the rest of his term, which doesnâ€t end until 2026, but has declined to say whether or not he would stay on for a third term.
Legally, Trump cannot force Powell to resign or fire him. Members of the Fedâ€s Board of Governors, which Powell is part of as the Fed chair, can only be fired for wrongdoing or job performance reasons, not differences in policy. Trump could try to fire Powell claiming heâ€s performing his job poorly, but that decision would probably embroil the president-elect in a drawn-out legal battle, like the one that ensnared Franklin Delano Roosevelt when he 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 works. Congress has made some changes over the decades, but thereâ€s no signal right now that most lawmakers are willing to challenge the independence of the institution.
Any attempts to interfere with the Fedâ€s independence could have ripple effects in the stock market, Jeremy Siegel, a finance professor at the Wharton School of the University of Pennsylvania, told Business Insider.
â€In general, thereâ€s no question that the market does not like any attempt to interfere, by the executive or congressional branches, in the independence of the Fed,†Siegel said.
But come May of 2026, Trump will be able to have some congressionally authorized say in Fed policy. Thatâ€s when heâ€ll be required to appoint a Fed chair for a new four-year term, whoâ€ll then have to undergo Senate confirmation. That may be Powell, or it could be someone more compliant with Trumpâ€s idea of what the Fed should be.
