President-elect Trump has dispelled speculation about replacing Federal Reserve Chair Jerome Powell. Previously, he had indicated during the campaign that he would take over the central bank and personally oversee economic affairs, which led to this speculation.
However, in an interview with NBC (Meet the Press), Trump stated: Fire him? No, I haven't thought about that. I feel that if I let him do it, he might agree, but if I really say something, he might not agree.
It sounds like he knows the person he appointed very well. After all, he personally appointed Powell. And Powell has also made it clear that he will not leave the Federal Reserve easily.
In the days after Trump's victory, the Federal Reserve Chair reaffirmed the central bank's independence, telling reporters that he would not step aside even if asked, and that the president does not have the authority to fire him or other Federal Reserve executives.
Trump's views on the Federal Reserve have always been controversial. He sincerely believes that the president should have a greater influence over monetary policy.
In an interview with Bloomberg, Trump stated: I think I have the right to say I think you should raise or lower a little. I don't think I should order it, but I think I should be able to comment.
He did not stop there. Trump even mocked Powell's job, calling it the best job in the government. He said: You only need to go to the office once a month and then say, let's take a look, let's flip a coin to decide.
Trump's dissatisfaction with Powell is not a secret; it stems from the Federal Reserve's multiple interest rate hikes during his first term, which Trump believes slowed economic growth.
As early as 2018, Trump considered firing Powell but did not act on it. Legal scholars point out that replacing the Federal Reserve Chair is not as simple as issuing an order.
(Federal Reserve Act) states that a member can only be removed for serious misconduct or abuse of power, not merely for policy disagreements. One night, Trump called Powell in the Oval Office and said, 'It seems I can only continue to work with you.'
Despite past tensions between the two, Powell has said he does not believe there will be new tensions with the Trump administration.
Although Powell’s term will last until 2026, his 14-year term as a Federal Reserve Governor will not end until 2028, limiting Trump's ability to replace him directly.
The President of the United States has the authority to appoint members of the Federal Reserve System Board, including selecting key positions such as the Chair and Vice Chair. Board members serve for 14 years, while the Chair serves for 4 years.
They are all members of the Federal Open Market Committee, which is responsible for deciding interest rates. During the next term, Trump will have at least two opportunities to appoint members of the Federal Reserve Board. One vacancy will arise when Federal Reserve Governor Adriana Kugler's term ends in January 2026.
These appointments require Senate approval, but with the Republican majority in the Senate, Trump may face less resistance than during his first term as president, when several of his Federal Reserve nominees were rejected.
Even with these appointments, Trump's influence is limited. The Federal Reserve's decision-making body also includes 12 regional bank presidents, who are independently selected by their respective bank boards and must be approved by the Federal Reserve Board. This decentralized system weakens the president's ability to directly control monetary policy.
Trump is not the first president to try to influence the Federal Reserve, but his approach has been the most public. He often expresses dissatisfaction at press conferences and interviews, accusing Powell of making poor decisions.
He also criticized the Federal Reserve's past performance, saying they often make mistakes. Trump believes that Powell's timing on key decisions was 'a bit too early and a bit too late.'
The central bank's responsibility is to manage inflation and employment without political interference, and Powell believes this is crucial for maintaining the trust of investors and the public. 'There is no doubt the Federal Reserve must remain non-political,' Powell stated earlier this year.
But the reality is more complex. The Federal Reserve often operates within a political context, collaborating with the Treasury Department and considering the economic impact of government policies such as tax cuts or spending plans.
Critics argue that this interaction makes it impossible for the Federal Reserve to completely shed its political coloring. Economists like Peter Conti-Brown, a historian of the Federal Reserve at Wharton School, describe the Federal Reserve as an 'institution with deep political coloring.'
However, he distinguishes between politics and partisanship, emphasizing that the Federal Reserve's decisions often reflect the opinions of multiple factions.
Despite these challenges, the Federal Reserve has maintained its independence for more than a century. Central banks around the world have drawn from this model to make difficult decisions, such as raising interest rates to combat inflation, without fear of political retaliation.
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