What a reelected Trump can and can’t do to sway the Fed

President Donald Trump is again raising questions about whether he will seek to limit the Federal Reserve's independence, as new tensions flare in his contentious relationship with the central bank.

In his second term as president, Trump has questioned the Fed's decision making, calling on the central bank to lower interest rates — reviving a refrain from his first stint in the White House. On April 17, he said Fed Chair Jerome Powell's "termination cannot come fast enough."

Trump has previously said he would allow Powell, whom he had discussed firing in 2018, to serve out his term but wouldn't reappoint him as the central bank's chief. Powell has said he wouldn't resign if asked by Trump.

Appointing fed officials

The President's most direct power over the Fed is through naming appointees to fill vacancies on the Board of Governors and appointing them to key positions, including chair, on that body. Governors fill 14-year terms and Fed chairs serve four-year terms. All sit on the Federal Open Market Committee, or FOMC, the policymaking group that sets interest rates.

Powell succeeded Janet Yellen, now Treasury Secretary, in 2018. In appointing him, Trump broke from recent historical precedent in which new presidents reappoint the chair chosen by their predecessor. President Joe Biden reappointed Powell in 2021.

Chart: Bloomberg

Powell's term as chair expires in 2026, and Trump will have the opportunity to name a new Fed chief. Powell's 14-year term as a governor ends in 2028, which will present Trump with one of two scheduled opportunities to name appointees to the Fed board. The other opportunity will be in January 2026, the end of Fed Governor Adriana Kugler's term. But those two positions represent a small slice of the Fed's 19 policymakers — all the Fed governors and the presidents of the 12 regional Federal Reserve banks. The regional presidents are selected not by the president, but by directors of the individual banks, subject to the approval of the Fed's Board of Governors.

Additionally, a president's appointees to Fed governor, chair and vice-chair positions must receive Senate confirmation, a process that serves as a check on the selections. Trump's Republican Party won control of the Senate in the Nov. 5 election, but it also held a majority in the body during his previous presidency from 2017 to 2021, when pushback from lawmakers doomed some of his Fed picks.

Removing the Fed chair

The most direct way of sending a message to the Fed would be to remove its chair, as Trump discussed doing in 2018 when he was angry with Powell over a series of interest rate hikes. In an interview with Bloomberg Businessweek conducted on June 25, Trump said that if he were reelected he would let Powell finish his term, adding "especially if I thought he was doing the right thing." A president can't dismiss a Fed chair easily, legal scholars say.

Section 10 of the Federal Reserve Act says members of the Board of Governors, of which the chair is one, can be "removed for cause by the president." Legal scholars have generally interpreted "cause" to mean serious misconduct or abuse of power.

Read more: Jerome Powell Is Back in Trump's World and About to Feel the Heat

Whether a president can remove the chair is more ambiguous because the law doesn't explicitly provide the "for cause" protection for the role, said Peter Conti-Brown, a professor and Fed historian at the Wharton School of the University of Pennsylvania. Regardless, because of the "for cause" protections for governors, stripping a Fed chair of that title might mean the individual could remain on the board. It also might not remove such an individual from another powerful perch: head of the rate-setting FOMC. Its members, not the president, choose who leads it.

Pressure campaigns

Presidents of both parties have tried to influence the Fed by applying pressure both publicly and privately. Historically, presidents have aired complaints in person, perhaps even with some physical intimidation — Lyndon Johnson summoned Fed Chairman William McChesney Martin Jr. to his Texas ranch in 1965 to berate him for raising borrowing costs. President Richard Nixon in the 1970s famously applied pressure on then-Fed Chair Arthur Burns, which some economists believe led the central bank to refrain from taking forceful steps to rein in inflation at the time. As president, Trump publicly lambasted the Fed and Powell for a series of interest-rate hikes during his tenure.

During his 2024 campaign, Trump suggested he would seek to influence how the Fed sets policy. "I feel the president should have at least say in there, yeah. I feel that strongly," he said during an Aug. 8 press conference at his Mar-a-Lago club in Palm Beach. "I think that, in my case, I made a lot of money. I was very successful," Trump added. "And I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman." He also criticized the Fed's policymaking, saying the central bank had "sort of gotten it wrong a lot" and that Powell had been "a little bit too early and little bit too late" on policy decisions.

In an October interview with Bloomberg News Editor-in-Chief John Micklethwait, Trump said he doesn't think the president should be able to mandate the Fed's actions but has the right to comment on the direction of interest rates.

The Biden administration largely refrained from speaking publicly about the central bank's policy. For their part, Democratic members of Congress have spoken out more directly. Senator Elizabeth Warren of Massachusetts, for instance, had publicly called on the central bank to lower interest rates before it did so in September.

Powell has repeatedly emphasized that the Fed aims to be apolitical and consider only what's best for the economy as it sets policy. When asked at an event in May about the Fed's independence in relation to the executive branch, Powell said "without question." He also said lawmakers on both sides of the aisle support the central bank's independence.

But the Fed is widely understood to operate in a political context. Fed leaders work closely with the Treasury Department, and spend time networking with Capitol Hill lawmakers. The Fed's decisions have to take into account the economic impact of decisions by both the president and Congress, such as tax cuts or large spending plans.

Conti-Brown, the Fed historian, said the central bank's financial regulation decisions can sometimes factor in feedback from various political factions. "The Federal Reserve is a deeply political institution," Conti-Brown said. But "politics and partisanship are quite different."

Why central banks want independence

In general, politicians like lower interest rates because making money cheaper helps people buy more things right now, boosting economic growth. To supporters of modern central banks, independence from political pressure is what lets banks take necessary but sometimes unpopular steps, like raising interest rates to fight inflation.

The argument for independence is that the economy will benefit more in the long run if investors and consumers believe that the central bank will do whatever is needed without fear of political consequences.

In May, the White House Council of Economic Advisers published a blog post emphasizing the Biden administration's "unwavering support" for central-bank independence, citing research and history to make the case that banks are better able to control inflation if they have the kind of public credibility that independence brings.