Former President Trump recently claimed that he would not reappoint Fed Chair Jerome Powell if elected in November. Indeed, the former President argues that Jerome Powell is playing politics and implementing monetary policies that favor Democrats rather than being impartial.
When asked the reasons for wanting to not reappoint Powell as the head of the central bank, President Trump said” “I think he’s political. I think he’s going to do something to probably help the Democrats, I think, if he lowers interest rates.” Interestingly, Jerome Powell is known to have Republican leanings but back in 2021, President Biden asserted that he would reappoint Jerome Powell as the chief of the central bank.
The U.S. Federal Reserve was created back in 1913 by Congress as the lender of last resort to avoid further bank panics and stabilize the American economy. One of the key features of the Federal Reserve upon its creation was its independence. According to Congress, the Fed sets interest rates and conducts other monetary policy actions without needing approval from the President or Congress.
This independence is seen as crucial for making long-term decisions about the economy, free from short-term political pressures. Moreover, the Fed’s primary goal is to maintain price stability (low inflation). Independence allows it to make decisions based on economic data and forecasts, rather than political considerations. At least, these principles of independence are theoretical, however. In practice, the Federal Reserve is not thoroughly independent. It rather acts as the bank of the federal government, and an institution that acts as the bank of the government cannot be thoroughly independent.
The Fed's governors are appointed by the President and confirmed by the Senate, but they cannot be removed except for cause. This raises concerns about accountability, as the Fed is not directly answerable to the public or their elected representatives. Furthermore, monetary policy decisions, which have a significant impact on people's lives, should, at least, be made by elected officials accountable to the voters rather than unelected officials. And the Fed's internal deliberations are not always transparent, which can fuel public suspicion and concerns about conflicts of interest.
Now, did Trump claim Powell to be “political” because he [Powell] wouldn’t serve his interest? Or did he claim it because he is himself a truly impartial man? Trump’s statement that Powell is “political” is correct. But it is correct for the wrong reasons. We know that Donald Trump loves to surround himself with loyalists and loves to appoint people who will be loyal to him rather than to the Office for which they were appointed.
Powell is political. And cutting interest rates during an electoral year is clearly a political move. Cutting interest rates during an electoral year means that the U.S. government can increase its spending in order to meet its objectives. And this will empower the incumbent administration to score political points and win the election to remain in power for another term.
The Federal Reserve Chairman is appointed for a four-year term and can be reappointed to additional four-year terms. Jerome Powell was originally appointed by President Trump in 2018, and then by President Biden in May 2022. Powell’s term expires in May 2026. If Donald Trump becomes again President, whose presidential term would end in 2028, he will surely let go of Jerome Powell in 2026.
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