Fed's Independence at Risk as Trump Seeks Control Over Monetary Policy

The U.S. Federal Reserve has announced plans to host a conference on payments innovation on October 21, 2025, emphasizing the importance of advancing the safety and efficiency of the payments system amid evolving technologies and market demands. The event, as reported by the Federal Reserve Board, aims to bring together a range of stakeholders, including experts in traditional and decentralized finance, to explore innovations that could shape the future of financial transactions [1]. The conference will cover topics such as the convergence of traditional and decentralized finance, the use cases for stablecoins, the integration of artificial intelligence in payment systems, and the tokenization of financial products and services [2]. It will be streamed publicly via the Federal Reserve’s official website [1]. The decision to host the conference underscores the central bank’s ongoing commitment to maintaining a modern and resilient payments ecosystem [1].

The announcement of the conference comes amid growing concerns about the independence of the Federal Reserve from political influence. European Central Bank President Christine Lagarde has publicly warned that undue political pressure on the U.S. central bank could pose a serious economic risk not only for the U.S. but also for the global economy. She emphasized that if the Federal Reserve’s monetary policy were to become subject to political directives, it could result in significant economic instability, especially given the U.S. economy’s global influence [3]. Lagarde’s remarks were made in the context of President Donald Trump’s repeated criticism of Fed Chair Jerome Powell and his attempts to remove Governor Lisa Cook, which have sparked alarms among economists and legal experts about the potential erosion of the Fed’s independence [4].

Trump has been vocal in his demands for the Fed to lower interest rates, with some of his administration officials arguing that the central bank should be more responsive to political considerations. Stephen Miran, a top White House economic adviser, has even proposed changes to the Fed’s structure to make it easier for the president to remove governors, arguing that increased accountability is necessary in a democratic society [4]. Meanwhile, other officials, such as Vice President JD Vance, have suggested that the Fed should be subject to more direct democratic input [4]. These calls for greater political control over the Fed have raised concerns among economists who warn that such interference could lead to higher inflation and weaker economic performance over the long term [4].

The independence of the Federal Reserve has long been considered a key factor in maintaining economic stability. Research has shown that central banks with greater independence tend to achieve lower inflation rates and more stable economic growth. Douglas Elmendorf, former director of the Congressional Budget Office, highlighted that if the Fed were to fall under the control of the executive branch, it could lead to years of high inflation, as seen in historical instances where political interference contributed to economic imbalances [4]. For example, in the mid-1960s, President Lyndon Johnson pressured the Fed to keep interest rates low to support his spending programs, which contributed to rising inflation. A similar pattern emerged in the 1970s under President Richard Nixon [4]. These historical precedents have led many to view the current challenges to the Fed’s independence as potentially having long-term economic consequences.

The ongoing legal battle over the removal of Governor Lisa Cook has further underscored the broader implications of these political pressures. Cook, who has not been charged with any crime, is challenging her firing in court, arguing that the allegations against her are a pretext for Trump’s desire to exert control over the Fed. The case could eventually reach the Supreme Court, with potential ramifications for the future structure and functioning of the central bank [3]. If Trump succeeds in replacing Cook with a nominee aligned with his economic agenda, he could gain a majority on the Fed’s governing board, potentially reshaping the direction of U.S. monetary policy [4]. Legal experts have noted that this situation is unprecedented in U.S. history and could set a dangerous precedent for future administrations.

Source:

[1] Press Releases (https://www.federalreserve.gov/newsevents/pressreleases/other20250903a.htm)

[2] Fed announces October conference on payments innovation (https://finance.yahoo.com/news/fed-announces-october-conference-payments-150903194.html)

[3] Trump's war on Fed is 'serious danger' to world economy ... (https://www.theguardian.com/us-news/2025/sep/01/trump-us-fed-ecb-christine-lagarde)

[4] What it could mean for the Fed to lose its independence (https://apnews.com/article/federal-reserve-trump-powell-cook-interest-rates-65f53b88f35f6fd4c670ce43efd6d852)