Source: Finance Association

Just as the Federal Reserve is about to hold its May interest rate meeting next week, local US media revealed a “big deal” — Republican presidential candidate Trump's allies are quietly drafting suggestions. If the former president wins the general election and comes to power for a second time, they will try to weaken the independence of the Federal Reserve.

Nick Timiraos, a well-known Federal Reserve mouthpiece journalist known as the “New Federal Reserve News Agency,” also participated in the report.

According to reports, from gradual policy changes to the long-term proposition that the president himself should play a role in interest rate setting, former Trump administration officials and other Trump supporters have recently discussed a series of suggestions. A small group of Trump's allies has written an approximately 10-page document outlining policy ideas for the Federal Reserve.

People familiar with the matter revealed that their work is very secret, and even some famous people who have worked as Trump's financial aides are unaware...

How to make the chairman of the Federal Reserve become a “puppet” of the president?

According to the news, this team composed of Trump's allies believes that future Fed interest rate decisions should seek Trump's opinion. The above draft document suggests that the Federal Reserve's rules and regulations should be reviewed by the White House, and that the Treasury Department should be more vigorously used to counterbalance the Federal Reserve.

The team also believes that once Trump returns to the White House, he will have the right to dismiss current Federal Reserve Chairman Powell early during his tenure (before the end of his term as chairman in 2026), but Powell is likely to remain on the Federal Reserve Board of Governors.

It is currently uncertain whether Trump knows or confirms these plans, but some people familiar with the discussions believe that this work has already been approved by the former president.

Several people who have discussed the Federal Reserve issue with Trump said that Trump seems to want someone to be in charge of the agency; in fact, he sees the president as an unofficial member of the central bank's interest rate setting committee.

Under this framework, the Chairman of the Federal Reserve will regularly seek Trump's opinion on interest rate policy, and then consult with the Committee to guide the policy on behalf of the President. Some Trump advisers also discussed requesting that candidates for the Federal Reserve Chairman privately agree to informal consultations with Trump on the central bank's decisions. Others have suggested that Trump himself could temporarily join the Federal Reserve Board of Governors, but several people close to the former president think this option is unlikely to be realized.

According to reports, Trump often said to his advisers that he likes low interest rates, and expressed frustration that, as president, he was unable to influence interest rate policies as he wanted.

Previously, during Trump's presidency from 2016 to 2020, Trump was greatly dissatisfied with US Federal Reserve Chairman Powell, who was appointed by him alone. Trump broke with the long-standing tradition of the US administration, publicly denouncing the Federal Reserve leader, first criticizing his decision to raise interest rates, then accusing him of not cutting interest rates fast enough after the pandemic.

According to people close to Trump, Trump has yet to decide how he will actually “treat” the Federal Reserve during his second term. What he is most concerned about right now is the upcoming general election, his ongoing personal legal disputes, and the search for campaign partners.

However, these people also pointed out that he had informal discussions with advisors about a possible candidate to lead the Federal Reserve. He also asked the relevant personnel if they were interested in the job — the media had previously revealed that Wall Street mogul Paulson, who supports Trump, is one of the popular candidates.

Is Team Trump's “Plot” Possible?

Undoubtedly, the Trump team's “plot” shocked some Trump advisers and Republican lawmakers who have more traditional views on the role of the Federal Reserve.

They are concerned that keeping a certain distance between the US government and the Federal Reserve's decisions is an unwritten rule. Breaking this practice could be counterproductive, especially if political intervention causes investors to believe that central banks are willing to tolerate higher inflation.

Currently, the US government has to pay off trillions of dollars of daily debt on a rolling basis every year. A former Trump administration official described Trump's prospects for influencing interest rates as a “scary idea.”

Republican Senator Kevin Cramer said that given the responsibilities of the Federal Reserve, their independence is essential to act in an unbiased and non-politicized manner. He said he would oppose any presidential attempt to challenge the Federal Reserve's right to independence. There's a reason the Federal Reserve has more than one policymaker — the board has safeguards.

Republican Senator Thom Tillis also stated that he will not tolerate President Trump's interference in monetary policy. He said, “I must consider the development of the Federal Reserve over the next 50 years, not the next 4 years. Independence is very important.”

What is clear is that any attempt by Trump to exert control over the Federal Reserve will face major institutional hurdles. Appointing a Federal Reserve governor is like appointing a justice to the Supreme Court: once someone takes office, it's hard to oust them. Supreme Court judges serve for life, while the term of the Federal Reserve governor is 14 years, and is independent of politics to a certain extent.

Lawyers studying this issue believe that the president has no right to fire the Federal Reserve Board due to policy disputes. However, it is unclear whether the president has the power to demote the president and replace the current board member.

While in office, Trump privately considered firing Powell, but never acted, in part because his advisors told him he didn't have that power.

In fact, even if Trump actually dismisses Powell as chairman early, as long as Powell does not relinquish his seat as Federal Reserve Governor, then Trump will have to choose to promote one of the six other Federal Reserve Board members to serve as Chairman of the Federal Reserve because there are currently no vacancies on the Federal Reserve Board. This also means that Trump is unable to “establish close friends” within the current Federal Reserve as he wishes. Currently, the Federal Reserve's seven-member board of directors will not be vacant until January 2026.

editor/tolk