With Donald Trump back in the White House, some of his supporters, including Elon Musk, are questioning whether the Federal Reserve should exist.
Elon Musk wants to “abolish” the Federal Reserve
Elon Musk, one of President Trump's biggest supporters, reposted Republican Senator Mike Lee's post on social media X with the "100%" emoji, supporting the idea of abolishing the Fed. According to Mike Lee, the Fed is an agency that does not belong to the President's power, which is against the Constitution. This is why many Republicans want to abolish the Fed and put control of the money supply in the hands of the President. Although Trump has not yet announced his support for this, his team has emphasized that all policies will be decided by President Trump himself.
During the campaign, Trump promised to “lower interest rates,” although in reality, the President cannot directly adjust interest rates. Since 1951, the Fed has been given the independent authority by Congress to set interest rate policy without political influence. This allows the Fed to make unpopular decisions that are beneficial to the economy in the long run. If Trump pressures the Fed to lower interest rates, this could cause inflation to rise again, which is contrary to the Fed’s price stability goal.
Trump has said he wants to fire or demote Fed Chairman Jerome Powell, whom he has criticized for keeping interest rates too high. However, the law states that a Fed chairman can only be fired “for cause” under the Federal Reserve Act, not simply for policy differences with the president. Powell has also made it clear that he cannot be fired for these differences alone. So Trump’s power to reform the Fed faces many legal limitations.
Why is the Fed important to the US economy?
The Fed is tasked with adjusting interest rates to maintain price stability and maximize employment. This helps the economy grow steadily and avoid negative fluctuations. If control of the Fed falls into the hands of a political body, interest rate policy can be dominated by the government's short-term goals, destabilizing the economy. With more than 70 years of independent operation, the Fed has helped the United States deal with many economic crises, ensuring sustainable development for the country.
With Republican majorities in the Senate and Supreme Court, Trump could test the Fed’s power in 2025. But legal challenges remain. The U.S. Supreme Court recently declined to hear a case that threatened the independence of the Consumer Product Safety Commission, another independent agency. This suggests that even with political support, changing the Fed’s power would face many obstacles.