Trump intends to exert dominance over the U.S. Federal Reserve
By Hannes Vogel
The Fed is the last, stronghold of financial decent in Donald Trump's tumultuous political reign. Like top-tier universities, courts, and agencies, the US President seeks to assert control over the central bank too. The economic consequences of such a power grab are dire, not only for America.
The first official meeting likely didn't end as Trump hoped. Last week, he summoned Fed Chair Jerome Powell to the White House for a briefing. His demand was clear: cut the interest rates - Trump needs growth and jobs to boost his image. But Powell stood firm, defying Trump's plea.
Following the meeting, Powell made it clear: he hadn't discussed his plans for monetary policy with Trump. Interest rate decisions would be based on "careful, objective, and non-political factors" - "as the law requires."
Backing Down, Not Option One: Fed Chair Reaffirms Stance
The fact that the US currency protector is forced to emphasize the obvious shows the current state of affairs. For months, Trump has been publicly pressuring Powell to lower interest rates. "Late Mr. Delay, a total failure" should cut rates "NOW," Trump posted on his Truth Social platform in his trademark aggressive tone. This power struggle wasn't new. During his first term, Trump also tried to subdue the Fed and its chairman shortly after his appointment. Back then, Trump accused Powell of being "crazy" and demanded rate cuts too.
He failed then. But this time, much has changed. Neither the Supreme Court nor Congress is stopping Trump like before. The central bank is the last line of defense Powell is defending against a barrage of demands and potential legal violations from the White House. Like universities, independent regulatory bodies, and the judiciary, Trump wants to circumvent them because they limit his power. This time, he seems willing to cross all legal boundaries to gain control.
Trump's Demand for Growth at Any Cost
The repercussions could be disastrous. The independence of the US central bank is a pillar on which the global financial system stands. The creditworthiness of the US is already under pressure due to America's mounting debt. If the Fed buckles under pressure, it could permanently damage the US economy and the trust in the dollar, potentially triggering a global financial collapse.
New Pressure on the Fed Chair: Trump - "I Understand More About Interest Rates than Powell"
Central banks in democracies are politically independent because their decisions affect trillions: corporate borrowing costs, profits, exchange rates, economic growth, inflation, and employment. Thus, they set interest rates based on economic data, regardless of short-term individual interests to maintain low inflation and high employment in the long run.
Trump wants to change that. He wants the central bank to print money on command, deliver growth and jobs on demand, and use them to score political points. Many American Presidents since Richard Nixon have dreamed of this, pressuring their central bank chiefs to lower interest rates before elections. But Trump now aims to formally secure the right to decide monetary policy: "I think the President should at least have some influence over it," Trump said during his campaign.
To bring Powell onboard, Trump has several options. One is to apply public pressure to force him to capitulate. Trump has been using this approach against disliked judges, agency chiefs, and political opponents for months. But Powell is one of the few officials who has held firm - unlike FBI chief Christopher Wray, who resigned before Trump's presidency expecting such demands.
Supreme Court Draws the Line
Trump has also publicly flirted with firing the Fed Chair: "Powell's dismissal can't come soon enough!" Trump exclaimed in April. But Powell's term runs until May 2026, and whether Trump can fire him is a matter of intense legal debate.
The Fed is an independent agency, and its governors can only be dismissed for cause: "Incompetence, negligence of duty, or misconduct." But what these terms mean hasn't been legally tested before. Since Trump is the first to seriously consider firing the Fed Chair prematurely, the legal grounds for such an action are unchartered territory. The Supreme Court has recently ruled that Trump has the right to fire the heads of other independent agencies but draws a line at the Fed. The question is whether Trump will respect this precedent.
The Power of Persuasion: Tricks to Influence the Fed
Trump has been working to bend Powell to his will without officially firing him. In February, Trump issued a decree that required regulatory agencies, including the Fed, to seek White House approval for all regulations. The Fed's power has already been significantly limited by this move.
Treasury Secretary Steven Mnuchin is also considering appointing a shadow Fed chief. The goal is to diminish Powell's influence so that Trump can dictate monetary policy unopposed. This underhanded tactic would undermine the Fed's credibility further, leading to uncertainty in global markets and potentially triggering a global financial panic.
"If Powell were removed, it would trigger the most dramatic flight from US assets imaginable," Euronews quotes a London investment analyst. "The dollar's role as the world's reserve currency and US Treasury bonds' function as safe havens would be gone - likely for good."
Germany wouldn't just be affected by the Fed's collapse due to the ensuing global financial panic. Somethingelse is also at risk: Around 1240 tons of gold - over a third of their total reserves - is currently stored in the Fed's high-security vaults in New York. Since 2013, the Bundesbank has been gradually reducing its holdings at the US central bank.
"Trump is unpredictable," says CSU MEP Markus Ferber. "You can't rule out that he might come up with creative ideas for dealing with foreign gold reserves."
Sources: ntv.de
Tags: Monetary Policy, Donald Trump, Fed, Jerome Powell
- The economic and monetary union of EC countries is closely watching the power struggle between US President Donald Trump and Federal Reserve Chair Jerome Powell, as the political interference with the Fed's monetary policy could have significant implications for global finance, investing, and general-news.
- Business leaders and economists are concerned about the future of the US currency and economy, as Trump's demands for the Fed to lower interest rates potentially disregarding objective economic factors could lead to dangerous inflation and weaken the role of the dollar as the world's reserve currency.
- In the face of relentless pressure from Trump, Fed Chairman Jerome Powell has emphasized the independence of the central bank and its commitment to making decisions based on careful, non-political factors, reflecting the importance of the Fed's role in maintaining stability within the broader political landscape of finance and business.
