Former President Donald J. Trump relentlessly criticized the Federal Reserve and Jerome H. Powell, its chairman, during his tenure. As he competes with President Biden for a second presidential term, many on Wall Street are wondering: What would a Trump victory mean for the U.S. central bank?
The Trump campaign does not yet have detailed plans for the Fed, several people in its orbit said, but outside advisers have focused more on the central bank and have made suggestions — some minor, some extreme.
While some in Mr. Trump’s circles have floated the idea of trying to limit the Fed’s ability to set interest rates independently of the White House, others have strongly pushed back against the idea, and people Close to the campaign said they thought such a drastic effort was unlikely. Limiting the central bank’s ability to set interest rates without direct influence from the White House would be legally and politically tricky, and tinkering so openly with the Fed could undermine the stock markets that Mr. Trump has often used as a yardstick. his success.
But other aspects of Fed policy could end up squarely in Mr. Trump’s crosshairs, former administration officials and conservative policy thinkers said.
Mr. Trump is poised to once again use public criticism to try to pressure the Fed. If elected, he will also have the opportunity to name a new Fed chairman in 2026, and he has already made clear in public comments that he plans to replace Mr. Powell, whom he had elevated to the position before President Biden reappointed him.
“There will be a lot of rhetoric thrown at the Fed,” predicted Joseph A. LaVorgna, chief economist at SMBC Nikko Securities America, an informal adviser to the Trump campaign and chief economist of the National Economic Council during Mr. Trump. administration.
And some in Mr. Trump’s circles are urging the campaign to consider more substantial changes — even institutional changes — to the central bank. The Fed regulates the nation’s largest banks, and Mr. Trump could take steps that would give him more control over that process, making the rules less onerous on financial institutions, for example.
Here’s how the Fed interacts with the White House today and how that could change.
The Fed is independent of the White House.
The Fed is responsible for keeping inflation under control, which it does by using higher interest rates to slow demand and ease price pressure. Outgoing presidents still prefer low interest rates, which encourage people to borrow and help support the economy, but they have no say in Fed policy.
Independence exists for an important reason: high interest rates can cause short-term economic pain and cost presidents the re-election. But they are sometimes necessary to ensure that inflation remains under control. Research suggests that allowing central bankers to set policy based on the country’s economic needs rather than a politician’s electoral needs allows policymakers to make better choices.
Since the 1990s, White House administrations have mostly avoided talking about Fed policy, out of respect for independence. But Mr. Trump turned that on its head while in office, regularly criticizing the Fed for keeping interest rates too high – suggesting that Mr. Powell was an “enemy” and that the president and his colleagues were “ idiots.”
This appears destined to continue if Mr. Trump is elected. He has already suggested that any attempt to lower interest rates before the election would be a political ploy to help Incumbent Democrats. He did similar comments in the run-up to the 2016 election, he then turned to lowering interest rates once in power.
Direct efforts to control interest rates could prove difficult.
As president, Mr. Trump learned that scolding the Fed did little to change policy — officials were privately angered by his comment but publicly ignored it, lowering rates less than what wished Mr. Trump.
The big question is whether Mr. Trump could go further this time and attempt to directly control Fed policy.
THE Trump campaign website talks about putting independent agencies under presidential control (promising to put “unelected bureaucrats in their place”), but is silent on whether that includes the Fed.
Legal experts have said it could be difficult for the White House to control the Fed’s interest rate policy without passing legislation through Congress. It’s a reality that Russell T. Vought, who headed the Office of Management and Budget in the Trump White House, alluded to during an interview with The New York Times in July.
Firing Mr. Powell could also be tricky.
However, a White House can influence monetary policy without doing so directly – including through leadership appointments.
The president has the ability to appoint governors to the Washington-based Fed board when they leave or when their terms expire. These officials represent seven of the 12 votes on interest rate policy, and the Fed’s chairman, vice chairman and vice chairman for banking supervision are all White House-appointed governors.
These roles are all filled at the moment, with only two governorates expires before the end of 2028. And Mr. Powell’s term as Fed chairman does not end until 2026. But Mr. Trump has already considered firing the Fed chairman, raising questions about whether he could do it again.
In early 2018, Mr. Trump became unhappy with Mr. Powell’s lack of loyalty and explored the possibility of firing the president. before determining that it would be cumbersome from a legal point of view. In 2020, he floated the idea of removing Mr. Powell as chairman and leaving him simply as one of seven Fed governors, but he never actually tried.
While some close to the campaign believe that firing Mr. Powell could be on the table again, others have warned that this would not be legally attempted and could be subject to legal challenge. Furthermore, Mr. LaVorgna noted, Mr. Trump could blame the Fed chairmanship if inflation remained persistent.
“Aside from legal issues, there is no incentive to replace the president,” Mr. LaVorgna said.
Mr. Trump could still use the appointments to influence the Fed.
But Mr. Trump has made clear that he has no intention of reappointing Mr. Powell to office at the end of his term.
Mr. Trump could not nominate just anyone to replace Mr. Powell: nominees for governor and Fed director must obtain Senate confirmation. Mr. Trump tried (or considered) appointing Fed governors who had expressed loyalty to him during his first term, including Judy Shelton, Herman Cain and Stephen Moore. None were brought into the Fed, in part because some senators maintained the idea that the Fed should be independent.
The potential names for Fed chairs circulating this time are largely conventional choices with economic backgrounds and government experience.
Kevin Warsh, Stanford professor and former Fed governor; Kevin Hassett, former chairman of the Council of Economic Advisers; and Christopher Waller, current Fed governor, are all mentioned as potential candidates. But it’s early days, decisions are still a ways off, and several people pointed out that the campaign isn’t paying much attention to the Fed at this point.
Changes to banking regulations could be considered.
There is one notable exception: Fed bank regulation appears to be a top priority. Mr. Vought, in his interview with The Times last year, said that “at a bare minimum” the Fed’s regulatory functions should be subject to review by the White House.
And Mr. Trump himself seems to refer to plans to dismantle Fed regulation in a video on his campaign website.
In it, he promises to sign legislation to “prohibit bureaucrats” from punishing companies that break rules they have established through informal guidance. It’s something the Fed does to banks as part of its daily supervisory process, and it’s a practice that Randal Quarles, Mr. Trump’s vice chairman for banking supervision, says try to push back.
More recently, Republicans have challenged the Fed’s surveillance policy. climate stress scenarios, which tests to ensure banks account for risks such as sea level rise and weather-related insurance payouts. Critics worry they could make it harder and more expensive for oil and gas companies. obtain financing (something progressive activists insisted).
Mr. Trump appeared to allude to it in his video, although he did not mention the Fed by name.
“Never again will bureaucrats be allowed to bully and pressure banks into financially stifling and distorting politically disadvantaged industries,” Mr. Trump said in the clip.
And Republicans are increasingly raising the possibility that the Fed’s independence should not extend to banking regulation — or who runs it.
Christina Parajon Skinner, a central banking legal expert at the University of Pennsylvania, recently began arguing that the Fed’s vice chair for supervision could legally be removed by a president because his role is structured differently of that of the president of the Fed.
Michael Barr, the Fed’s vice chairman for banking supervision, will see his term expire in 2026. If Ms. Skinner is right, it would be possible to replace him sooner.
She said that while she did not “agree with some speculation” that Mr. Trump would want to restrict the Fed’s monetary independence, she believed that “financial regulation is something the administration would be interested in.” to pivot” if Mr. Trump won. .
Jonathan Swan reports contributed.
