The Fed’s structure is unlike any institution in Washington, D.C. Policymakers can raise, lower or maintain the key interest rate that ripples through your wallet and the world’s largest economy independently from Congress or the president — an autonomy from politics granted by the politicians themselves, when they created the current iteration of the U.S. central bank in 1913.
Trump has made similar attempts to gut other regulatory institutions, including the watchdog Consumer Financial Protection Bureau (CFPB) and the head of the Federal Trade Commission (FTC). In February, Trump signed an executive order to gain more control of independent federal institutions, though he explicitly excluded the Fed.
It might seem like the Fed’s work is so mind-bendingly complex and far removed from your day-to-day that the question of who runs it can’t impact your wallet. But central banking experts and former Fed officials interviewed by Bankrate say this isn’t a topic worth ignoring. If the Fed’s independence is in doubt, here are the main ways it could affect your wallet.
Scholars have suggested that the Federal Reserve Act of 1913 would not have passed if Congress hadn’t protected it from partisan influence.
Legislators have given the Fed two tasks: keep inflation low and stable and the labor market strong enough so everyone who wants a job can find one. When a central bank can make decisions independent from elected officials, they’re more likely to achieve those goals, according to research from Italian economist Alberto Alesina and former Treasury Secretary Larry Summers.
If the president has control over monetary policy, consumers, investors and businesses might have to endure higher inflation, according to Chris Clarke, assistant professor of economics at Washington State University. Elected officials typically prefer low rates because they rev up the economy, Clarke said. He recalls a famous quote from former Fed Chair Alan Greenspan, who quipped that he’s received “truck loads” of requests to lower interest rates from Congress and not a single request to raise them.
The hyperinflation of Argentina, he said, is one example of what can happen when a central bank is politicized.
The U.S. central bank’s record isn’t perfect. Many historians argue that the U.S. economy’s worst bout of inflation in the post-World War II era happened because former Fed Chair Arthur Burns gave in to President Richard Nixon’s demands to keep borrowing costs low ahead of his reelection. The misstep later resulted in stagflation — and required a painful recession to cure it.
“This cautionary tale of placing political pressure on the Federal Reserve is exactly why it is considered so dangerous today,” Kates said. “Rising and persistent inflation would not only frustrate consumers but also degrade the purchasing power of their money.”
Powell has vowed not to repeat those mistakes. He publicly praised former Fed Chair Paul Volcker, Burns’ successor, who was ultimately the one to defeat that inflation. He even once dedicated him a moment of silence during the first rate-setting meeting after Volcker’s death in 2019, transcripts now show.
“People can say whatever they want,” Powell said when asked about Fed independence in an April 16 public appearance from Chicago. “That’s fine. That’s not a problem, but we will do what we do strictly without consideration of political or any other extraneous factors.”
In a speech on Fed independence back in 2023, Powell said that the central bank’s autonomy grants businesses and consumers “immeasurable benefits” over time — primarily because the public has faith in the Fed’s commitment to keeping interest rates low.
If that trust gets eroded, investors might start demanding a higher premium for holding Treasury debt, RBC’s Gwinn said. That wouldn’t just make it costlier for the government to finance the trillions of dollars that it borrows — but also for consumers and businesses to finance their big-ticket purchases. Treasury yields are widely seen as a “risk-free” rate, meaning increases in this corner of the financial system lead to higher borrowing costs everywhere else.
Amid the chief executive’s volatile stop-and-go trade policies, there’s already been some speculation that investors are starting to question the safe-haven status of U.S. Treasury debt. In mid-April, the key 10-year Treasury yield jumped nearly half a percentage point in the span of just a week, hitting 4.48 percent before settling back down at 4.29 percent. That led to the average 30-year fixed-rate mortgage’s biggest weekly gain since October, Bankrate data shows.
“U.S. assets have benefited from this ‘stability premium,’ that the U.S. is just this rock-steady, predictable place to be,” Gwinn said. “That I think has taken a little bit of a hit, and that’s causing the price action we’re seeing.”
Hassett wrote in his 2021 book “The Drift” that fears of a stock market crash or a loss of credibility in U.S. investments were what led him to declare the Fed Chair as “100 percent safe” during Trump’s first term in December 2018.
“Firing Powell would have savaged the reputation of the Federal Reserve Board as an objective and independent manager of the nation’s money supply,” Hassett wrote.
Here are all the ways a president can (and can’t) influence the Federal Reserve, by law.
Learn more
The chief central banker, however, has insisted that the executive branch doesn’t have the legal authority to fire him, and Powell has repeated in remarks dating back to 2019 that he would not step down, even if he were asked.
Current legal precedent states that heads of independent agencies can be removed “for cause,” not because of policy disputes. The Supreme Court, however, is expected to soon revisit a 1933 court case that may provide more clarity on what authority the president has to fire a leader of an independent agency.
“I don’t think that that decision will apply to the Fed, but I don’t know,” Powell said on Wednesday. “It’s a situation that we’re monitoring carefully.”
Even as Trump’s criticisms against the Fed grew louder, Clarida said he never noticed them influencing the Fed’s interest rate decisions during his tenure.
Only once — during the U.S. central bank’s July 31-Aug. 1, 2018, meeting, before Clarida’s term had begun — did Trump’s attacks get brought up during a Federal Open Market Committee (FOMC) meeting, according to a Bankrate analysis of Fed transcripts released in 2018 and 2019. That reference didn’t come from a Fed policymaker but from one of the key managers of the U.S. central bank’s open-market operations — and only to say that Trump’s comments hadn’t appeared to erode trust in the Fed’s commitment to controlling inflation.
“It doesn’t enter the room,” Clarida said, referring to politics. “Even though we tend to focus on the individuals at the Fed, it is a committee, and there are 19 people around the room who have different preferences and different views.”
If you’re worried about Fed independence and more market volatility, here are the steps Bankrate’s Kates recommends:
“At this point, concerns about Fed independence only amount to a war of words in the press,” Kates said. “President Trump may be airing his grievances about interest rates, but he has not taken any real steps to usurp the Fed or replace the current Chair Jerome Powell.”
For now, Powell has reiterated that the Fed is not cutting interest rates because it wants to see how higher import taxes impact the economy and inflation. The Fed’s “obligation,” he said, is to make sure a one-time price increase doesn’t feed into something longer-lasting. Without price stability, meanwhile, the Fed cannot achieve the “strong labor market conditions that benefit all Americans,” Powell said.
“If you’re getting these political pressures and people are complaining about monetary policy, all you can do is do the best you can and explain as carefully as you can what you’re doing. There’s no other way forward,” said Bill English, professor at the Yale School of Management who spent more than two decades at the Fed’s Board of Governors. “You don’t want to end up in a political shouting match that you’re not going to win, so you try to be calm, de-escalate, make the best decisions you can and hope that, in the end, you garner support for Fed independence.”