The Federal Reserve's independence is under severe threat in the era of Donald Trump, with the president's ultimate goal being to bend the central bank to his will. Jerome Powell, who recently stepped down as chair of the Federal Reserve, faced both successes and failures during his tenure. While the Fed was slow to react to rising prices after the Covid pandemic, it eventually acted decisively to achieve a rare 'soft landing'—curbing inflation without triggering a recession or harming employment.
However, Powell's legacy may not be defined by monetary policy alone. His most enduring achievement is likely his vocal defense of the Fed's independence against the imperial presidency of Donald Trump. Unfortunately, that battle is far from over. Powell skillfully managed the president, ignoring demands to slash interest rates and refusing to resign when Trump threatened to indict him over a spurious claim about refurbishing the Fed's headquarters. Austan Goolsbee, president of the Federal Reserve Bank of Chicago, praised Powell's approach: 'The best thing Jay Powell did for the Fed's independence is that he just did the job as you are supposed to do it.'
Even if Kevin Warsh, Trump's pick to replace Powell, proves to be a loyalist eager to cut rates despite inflation fears, he is unlikely to sway the majority of the Federal Open Markets Committee, which includes only two Trump appointees. Yet the Fed remains vulnerable. Trump's ultimate aim is to subjugate the Fed, and he has a Supreme Court with a conservative majority that embraces the 'unitary executive theory,' essentially granting the president unchecked power.
Trump's Assault on Independent Agencies
Trump has targeted not only Powell but also other Fed officials. He accused board member Lisa Cook of lying on a mortgage application and fired her 'for cause,' a decision that lower courts have ruled against but which is now before the Supreme Court. The Fed is not alone; the Supreme Court has dismantled protections for agencies like the National Labor Relations Board, the Merit Systems Protection Board, the Consumer Product Safety Commission, and the Federal Trade Commission, allowing Trump to fire officials at will. As Justice Ketanji Brown Jackson noted, allowing a president to replace experts with loyalists harms citizens.
The Fed is somewhat better protected than other agencies due to the economic risks of political interference. History shows that pressuring central banks to adjust rates or fund government debt leads to inflation. This lesson is especially relevant under Trump, who has used policy to settle grudges and reward allies. Despite these threats, financial markets have remained calm, betting that the legal system—particularly the Supreme Court—will defend the Fed's independence. The conservative justices have explicitly exempted the Fed, calling it a 'uniquely structured quasi-private entity.'
Georgetown law professor Stephen Vladeck dismissed this reasoning as 'completely stupid' but acknowledged its intent: to reassure markets. Nonetheless, the broader federal apparatus remains vulnerable to presidential whims. Powell deserves credit for staying on the Fed's board to safeguard its autonomy, even as the Supreme Court threatens to undermine it. His efforts help preserve the Fed's independence, however tenuous.
