Trump Allies Ramp Up Pressure on the Fed: A Threat to Central Bank Independence?
- Why Are Trump’s Allies Targeting the Fed?
- Could Powell Resign to Save the Fed’s Autonomy?
- What’s at Stake for Markets?
- FAQ: The Fed Under Fire
The Federal Reserve is under unprecedented scrutiny as TRUMP allies push for a sweeping review of its operations. Beyond the headlines about Jerome Powell’s job security, the real concern is whether the Fed’s independence—and its very structure—could be overhauled. Treasury officials and economists are now openly debating the Fed’s role, mission creep, and even Powell’s resignation. Here’s why this battle matters for markets and the global economy. ---
Why Are Trump’s Allies Targeting the Fed?
The drama around whether Trump will fire Fed Chair Jerome Powell is just the tip of the iceberg. The bigger threat? A full-scale rework of how the Federal Reserve operates. Scott Bessent, a key Treasury figure, set the tone this week by calling for a top-to-bottom review of the Fed’s performance. His critique wasn’t subtle: “All these doctors there—I don’t know what they do,” he quipped on CNBC, dismissing concerns about tariffs and inflation as overblown.
This isn’t just about Powell. The Fed’s 12-member Federal Open Market Committee (FOMC) votes on rate decisions, and tradition—not law—keeps the chair in leadership. If political pressure mounts, the committee could technically block Powell’s reappointment or reshape the Fed’s mandate. The system was designed to insulate monetary policy from politics, but that firewall is now being tested.
---Could Powell Resign to Save the Fed’s Autonomy?
Mohamed El-Erian, Allianz’s chief economic advisor and a Cambridge don, dropped a bombshell: Powell should quit. Not because he’s failing, but because staying might worsen the Fed’s politicization. “If the goal is to protect the Fed’s autonomy, resignation may be the least bad option,” El-Erian argued. Wall Street expects Powell to serve until 2026, but El-Erian sees escalating risks to the Fed’s independence—from mission creep (e.g., wading into trade wars) to outright restructuring.
El-Erian’s stance echoes Bessent’s broader critique: the Fed has strayed from its Core goals (inflation and employment) into political debates. With Treasury officials and economists now aligned, the Fed faces its most existential challenge in decades.
---What’s at Stake for Markets?
Forget “Powell fired” headlines—the real volatility lies in a Fed overhaul. Investors rely on the central bank’s predictability. If its structure or mandate shifts, markets lose a stabilizing force. Case in point: when Bessent’s comments hit, Treasury yields wobbled, and stocks dipped. “The Fed’s credibility is its currency,” noted a BTCC analyst. “Tinker with that, and you risk a dollar crisis.”
Historical precedent isn’t comforting. The last major Fed reshuffle—the 1970s inflation battles—triggered years of turmoil. Today, with global debt at record highs, the stakes are even higher.
---FAQ: The Fed Under Fire
Can Trump legally fire Jerome Powell?
It’s murky. The Fed chair can only be removed “for cause,” but legal scholars debate what qualifies. A 2020 Brookings study suggested Trump WOULD face fierce court challenges.
What’s “mission creep” at the Fed?
El-Erian’s term for the Fed overstepping its CORE duties (like opining on tariffs). Critics argue this invites political interference.
How might the Fed’s structure change?
Proposals range from term limits for governors to stripping the FOMC’s rate-setting power. None are imminent, but the debate is escalating.
