At a congressional hearing in July 2019, Representative Maxine Waters asked the Federal Reserve chairman, Jerome Powell, what he would do if the president called and said, “I’m firing you, pack up, it’s time to go.” Mr. Powell said diplomatically, “My answer would be ‘no.’” In private, he was more blunt. “I will never, ever, ever leave this job voluntarily until my term ends under any circumstances,” he said. “None whatsoever. You will not see me getting in the lifeboat.”
We may soon find out the depth of that conviction. “Powell’s termination cannot come fast enough!” President Trump wrote Thursday morning on social media, a day after Mr. Powell said that the Fed may need to postpone cutting interest rates, thanks to Mr. Trump’s tariff policy.
This was not another impulsive social media post. Since returning to the White House, Mr. Trump has been laying the groundwork to fire Mr. Powell, discussing the idea repeatedly with close advisers. This latest escalation brings us even closer to a full-blown crisis over Fed independence.
Mr. Trump’s dislike for Mr. Powell is more than a personal spat. It’s a direct challenge to the economic foundation that has helped make America prosperous for generations. The Federal Reserve, established in 1913 and reconstituted in 1935, manages interest rates to ensure credit doesn’t become too expensive, stifling investment and employment, or too cheap, spurring inflation. The Fed also regulates and supervises financial institutions to ensure they are financially sound.
The combination of its monetary and regulatory policy are part of a policymaking tradition that I call “marketcraft”: guiding markets toward a particular political and economic goal — in the Fed’s case, stable prices and full employment. Like many institutions, the Fed has an imperfect track record in meeting its goals, but a fundamental ingredient to its success has been insulation from political pressure — precisely what the president is targeting.
Mr. Trump began issuing threats to the independence of the Fed and other agencies in his first term, but he’s doing far more to make good on them in his second. In his first week in office, he fired a Democratic member of the National Labor Relations Board. Last month, he removed two Democratic commissioners from the Federal Trade Commission, despite statutory protections that specify these officials can be removed only “for cause” — inefficiency, neglect or malfeasance.
These were calculated moves to test boundaries before taking aim at the ultimate prize: control of monetary policy. “This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly,” Mr. Trump wrote on social media after rolling out his “Liberation Day” tariffs this month. “STOP PLAYING POLITICS!”
The historical parallels are striking. In 1933, Franklin Roosevelt similarly attempted to fire F.T.C. Commissioner William Humphrey over policy disagreements. The Supreme Court unanimously ruled against Roosevelt, establishing the principle that Congress could create agencies with independence from direct presidential control. That precedent has implicitly protected the Federal Reserve for nearly a century, allowing the central bank to make decisions based on economic data, rather than political expediency.
Presidents have often sought more control, even if they’ve never considered the full-on assault that Mr. Trump is mulling. Lyndon Johnson, seeking lower interest rates to fund the Vietnam War and Great Society programs, summoned the Fed chair, William McChesney Martin, to his Texas ranch to pressure him into loosening policy. When he refused, Johnson dared Mr. Martin to resist the confirmation of the first Black Fed governor, Andrew Brimmer, whom Johnson expected would favor looser policy. (Mr. Brimmer disappointed Johnson on that count.) A few years later, when the Fed chair, Arthur Burns, laid the blame for rising prices at the feet of Congress and the White House, President Richard Nixon responded with a public smear campaign against Mr. Burns, his former friend. Under pressure, Mr. Burns intensified his search for inflation-fighting methods that wouldn’t require steep rate hikes, but the failure of those efforts led to stagflation.
To be sure, the Fed’s independence doesn’t exempt it from criticism. Many left-of-center economists, myself included, reject the notion that central banking is a pure economic science divorced from political choices. The Fed’s decisions about interest rates directly affect credit access, employment levels and income distribution, often with uneven consequences across economic sectors and demographic groups. But proper accountability runs through Congress — the institution that created the Fed, defines its mandate and conducts oversight of its operations — and not through presidential demands for politically expedient monetary policy.
Markets understand Mr. Trump’s threat intuitively. Investors are already dumping Treasury debt in anticipation of potential Fed politicization. If Mr. Trump were to gain direct control of monetary policy, global financial markets would enter a state of shock as investors lost confidence in the central bank’s commitment to price stability. The U.S. government would face significantly higher borrowing costs on the trillions it needs in coming years. Household budgets would be hit by higher borrowing costs, too, and by rising inflation.
The Supreme Court will probably decide soon how far Mr. Trump’s power to hire and fire extends. While some scholars believe the court might preserve Fed independence as an exception — even Justice Samuel Alito suggested as much in a footnote to a recent decision — nothing is certain. The court’s conservative majority has twice ruled against restrictions on presidential removal power in the past five years, suggesting that it views agency independence with skepticism.
This constitutional showdown is about whether America can maintain the economic stability that has underpinned its prosperity. Insulated central banking isn’t just an American tradition — it’s a global standard for good governance. Countries with politically controlled central banks suffer chronic inflation, currency volatility and stunted growth. When a central bank loses its credibility with markets, it loses its power to influence them — and with that, its power to steer the economy through choppy waters.
If Mr. Trump succeeds in subjugating the Federal Reserve, the consequences would extend far beyond his term in office. Interest rates would fluctuate with election cycles rather than economic conditions. Inflation expectations would become unanchored, creating the potential for prices to spiral out of control. The dollar’s status as the world’s reserve currency — which gives America enormous economic advantages — would be jeopardized.
And beyond the Fed, Mr. Trump’s assault on institutional independence would threaten a tradition that has been essential to America’s success. For nearly a century, we’ve prospered by empowering expert agencies to guide markets toward public goals. The New Deal’s Reconstruction Finance Corporation revitalized banking, created our aviation industry and spurred housing construction during the Depression. The Strategic Petroleum Reserve, born from the 1970s energy crisis, has mitigated price instability during supply shocks and provided security for decades. More recently, the bipartisan CHIPS and Science Act has attracted five major semiconductor manufacturers to American soil to reduce our dependence on foreign chips.
The Fed’s effectiveness, like that of these other efforts, rests on a shared formula: clear missions, necessary independence and professional leadership insulated from day-to-day political interference. By undermining these principles, Mr. Trump isn’t making America great. He’s dismantling the institutional architecture that made American prosperity possible in the first place.
Chris Hughes is the author of the forthcoming book “Marketcrafters: The 100-Year Struggle to Shape the American Economy” and a co-founder of Facebook.
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