Donald Trump would like to have “his say” in the decisions of the American central bank, the Federal Reserve (Fed). Back in the White House, he could try to weaken the precious independence of the monetary policy institution.
“The president should at least have his say,” said Donald Trump. “I think I have better instincts than, in many cases, the people who sit on the Federal Reserve, or the president,” he assured on August 8.
The powerful Fed raises and lowers interest rates according to developments in the American economy, to ensure price stability and full employment. And she firmly insists on not being involved in political life.
Allowing “politicians, whose horizons only extend until the next elections, to have their say on monetary policy (…), a product of inflation and economic instability”, underlined Don Kohn, former vice-president of the Fed, in an article published in the New York Times in mid-October.
Donald Trump, during his first term, regularly called names to Fed officials when rates did not fall fast enough for his liking. He even wondered, in an angry tweet, if Fed President Jerome Powell – whom he himself had appointed – was not “a worse enemy” than Chinese President Xi Jinping.
“It was considered a very hostile communication,” David Wilcox, economist at the Peterson Institute for International Economics and US director of economic research for Bloomberg, recalled to AFP.
– “Conventional” approach –
Even before his re-election, the Republican billionaire had suggested that he could anticipate the end of Jerome Powell's mandate as head of the Fed, in May 2026, and remove him from this post – his mandate as governor, distinct, runs until 2028. Then changed his mind.
Resign before? “No,” Jerome Powell decided Thursday during a press conference. Being forced to leave? “Prohibited by law,” he decided.
“There are rules and laws and the Fed protects itself from this political influence,” notes Kathy Bostjancic, chief economist for the insurance company Nationwide.
But given the “excessive influence” of the Fed president, the next one, who will be chosen by Donald Trump, “could change the dynamics and independence of monetary policy,” she believes.
“The most conventional way in which (Donald Trump) could influence the policy of the Federal Reserve” would be to use his power to appoint new governors, when the 14-year mandates end, adds David Wilcox.
“What raises concerns is the possibility that it will go beyond this approach,” he adds.
The first vacancy will arrive in January 2026. “Trump will have the opportunity to appoint whoever he wants to this vacant seat” to take the helm of the Fed, notes Steve Englander, economist at Standard Chartered and former member of the Fed from New York.
However, the nominations must then be confirmed by the Senate.
Which offers a certain security, emphasizes Steve Englander: “You can't pick a name out of a hat and table it in the Senate, get it out of committee the next day and confirm it the next day. (Senators) take their role very seriously. serious.”
Markets also play a role, he adds. “We cannot make a nomination that is 180 degrees from the mainstream,” because “the bond market would immediately reject this idea. The bond market is a safeguard,” he explains.
Furthermore, points out Kathy Bostjancic, even if the appointments were political, “there would still be a large number of governors and regional Fed presidents who would not be appointed by President Trump.”
The hypothesis of a “shadow president” of the Fed was however put on the table by Scott Bessent, a close friend of Donald Trump, tipped to become his Secretary of the Treasury – Minister of Economy and Finance -, according to a Forbes article published on October 15. So, he hopes, “no one will really care what Jerome Powell has to say anymore.” Forbes specifies that Donald Trump has not commented on this idea.
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