Trump's Push to Control the Fed Risks Undoing 90 Years of Independence

President Donald Trump’s recent attempt to fire Federal Reserve Governor Lisa Cook has sparked widespread concern among economists, legal scholars, and former officials about the potential erosion of the central bank’s independence. With 593 U.S. economists voicing alarm over the move, the implications of such an action extend beyond personnel decisions and could signal a broader effort to politicize the Federal Reserve, an institution traditionally shielded from executive interference. Legal experts warn that this effort may violate the Federal Reserve Act and undermine the credibility of monetary policy in the long term [1].

Trump’s campaign to exert control over the Fed has included repeated public criticism of the central bank’s decision-making, demands for rate cuts, and now, an unprecedented attempt to remove a sitting board member. Legal scholars like Kathryn Judge from Columbia Law School argue that these actions represent a dangerous shift in how the Fed operates. “We are on a road that is going to lead to the erosion of central bank independence,” Judge said, emphasizing the cost to the U.S. economy and its financial stability [1].

The Fed’s independence is critical to its ability to make decisions based on economic data rather than political pressure. This independence is particularly vital when the central bank must take unpopular actions, such as raising interest rates to curb inflation. However, Trump’s strategy appears to target the Fed’s institutional autonomy by seeking to replace board members with appointees who align with his policy preferences. Should he succeed in installing a majority of like-minded governors, Trump could gain influence over key levers of economic control, including the discount rate, interest on reserve balances, and regulatory authority over banks [1].

Critics argue that Trump’s approach mirrors historical examples of political interference in central banking, such as those seen in countries like Turkey and Latin American nations, where political leaders imposed monetary policies that led to hyperinflation and economic instability. Cornell Law Professor Robert Hockett warned that if Trump succeeds in turning the Fed into a “rubber stamp,” it could erode public confidence in the central bank and weaken the dollar’s stability [1].

While Trump and some of his allies dismiss these concerns as overblown, they have advocated for structural reforms that would increase executive oversight of the Fed. These reforms include easier removal of governors and greater involvement of the president in rate-setting decisions. Proponents argue that such changes would enhance democratic accountability. However, critics counter that these measures could compromise the Fed’s ability to act in the long-term interest of the economy, particularly when decisions are unpopular with the electorate. Former Fed Vice Chair Roger Ferguson described the current situation as an attempt to “undo what had been 90 years of Fed independence,” marking a significant shift in how the institution is perceived [1].

The long-term consequences of such a shift remain uncertain. While Trump currently has two appointees on the seven-member Board of Governors, with a third nomination pending Senate confirmation, he would need to replace several more members to establish a majority. However, the independence of figures like Christopher Waller and Michelle Bowman complicates this effort, as they have shown a willingness to deviate from consensus in their policymaking. Additionally, the legal challenges to Trump’s firing of Lisa Cook could further delay any attempt to reshape the board [1].

Economists remain divided on the Fed’s next steps. While most support the central bank’s independence, some believe that modest rate cuts are justified given current economic conditions. For instance, Morgan Stanley recently updated its forecasts, predicting a more dovish path for interest rates than previously expected [5]. However, other analysts caution against premature rate cuts, emphasizing that inflation remains above the Fed’s 2% target and that the labor market remains robust [6]. As the debate continues, the broader implications for the Fed’s autonomy—and the stability of the U.S. economy—will depend on the outcome of these legal and political battles.

Source:

[1] Trump Federal Reserve board (https://www.cnbc.com/2025/08/30/heres-what-it-really-means-for-trump-to-get-control-of-the-federal-reserve-board.html)

[2] What the end of Federal Reserve independence could mean (https://abcnews.go.com/US/wireStory/end-federal-reserve-independence-125134189)

[3] Trump and sons' stake in crypto firm worth $5bn (https://www.bbc.com/news/articles/ckgjgyyqgvyo)

[4] This Wall Street heavyweight predicts interest rates could go even lower than markets think (https://www.marketwatch.com/story/this-wall-st-heavyweight-predicts-interest-rates-could-go-even-lower-than-markets-think-879a4748)

[5] The Fed Will Cut Interest Rates In September? Don't Be So Sure (https://www.forbes.com/sites/billconerly/2025/08/30/the-fed-will-cut-interest-rates-in-september-dont-be-so-sure/)