Trump Allies Draw Up Plans to Blunt Fed’s Independence

WASHINGTON—Donald Trump’s allies are quietly drafting proposals that would attempt to erode the Federal Reserve’s independence if the former president wins a second term, in the midst of a deepening divide among his advisers over how aggressively to challenge the central bank’s authority.

Former Trump administration officials and other supporters of the presumptive GOP nominee have in recent months discussed a range of proposals, from incremental policy changes to a long-shot assertion that the president himself should play a role in setting interest rates. A small group of the president’s allies—whose work is so secretive that even some prominent former Trump economic aides weren’t aware of it—has produced a roughly 10-page document outlining a policy vision for the central bank, according to people familiar with the matter.

The group of Trump allies argues that he should be consulted on interest-rate decisions, and the draft document recommends subjecting Fed regulations to White House review and more forcefully using the Treasury Department as a check on the central bank. The group also contends that Trump, if he returns to the White House, would have the authority to oust Jerome Powell as Fed chair before his four-year term ends in 2026, the people familiar with the matter said, though Powell would likely remain on the Fed’s board of governors.

It couldn’t be determined whether Trump is aware of or signed off on the effort, but some people close to the discussions believe the work has received the blessing of the former president.

“Let us be very specific here: unless a message is coming directly from President Trump or an authorized member of his campaign team, no aspect of future presidential staffing or policy announcements should be deemed official,” Trump senior advisers Susie Wiles and Chris LaCivita said in a statement.

Trump, who often tells advisers that he loves low interest rates and expressed frustration that he couldn’t influence them as president, hasn’t yet decided exactly how he would approach the Fed in a second term, people close to him said. He is focused foremost on the coming election, his continuing legal troubles and his search for a running mate. But he has had informal discussions with advisers about possible candidates to lead the central bank, and he has asked associates whether they would be interested in the job, the people said. Trump has repeatedly complained—in public and in private—about Powell, continuing a yearslong campaign to discredit the man he picked to lead the Fed.

Several people who have spoken with Trump about the Fed said he appears to want someone in charge of the institution who will, in effect, treat the president as an ex officio member of the central bank’s rate-setting committee. Under such an approach, the chair would regularly seek Trump’s views on interest-rate policy and then negotiate with the committee to steer policy on the president’s behalf. Some of the former president’s advisers have discussed requiring that candidates for Fed chair privately agree to consult informally with Trump on the central bank’s decisions, the people familiar with the matter said. Others have made the case that Trump himself could sit on the Fed’s board of governors on an acting basis, an option that several people close to the former president described as far-fetched.

The discussions have alarmed some Trump advisers with more-traditional views of the role of the Fed, as well as Republican lawmakers. They worry that chiseling away at unwritten norms around keeping politics at arm’s length from Fed decisions could backfire, particularly if political interference leads investors to conclude that the central bank is willing to tolerate higher inflation. That could raise long-term interest rates, including rates on mortgages, credit cards and auto debt, when the U.S. government has to roll over trillions of dollars in debt annually. One former Trump administration official described the prospect of Trump’s influencing interest rates as a “horrifying thought.”

“Given their charge, their independence is critical to doing it in an unbiased, nonpolitical way,” said Sen. Kevin Cramer (R., N.D.), who said he would oppose efforts by any president to challenge the Fed’s autonomy. “There’s a reason that there’s not just one decision maker—that there are safeguards built into a board of governors.”

Sen. Thom Tillis (R., N.C.) said he, too, wouldn’t condone efforts by a president, including Trump, to interfere with monetary policy. “I have to think about the Fed for the next 50 years, not the next four, and independence is important,” he said.

Any effort by Trump to exert control over the Fed would face significant institutional hurdles. Even if a court upheld an effort to demote Powell as chair, Trump would likely need to elevate one of the Fed’s other six governors to the position because there are no vacancies on the central bank’s board. Two of those governors were installed by Trump.

A Fed appointment is akin to putting a jurist on the Supreme Court: Once someone is installed, it is difficult to force him or her out. Supreme Court justices have a lifetime appointment, and Fed governors have 14-year terms to provide a degree of independence from politics.

Lawyers who have studied the issue believe the president lacks the power to fire Fed governors over a policy dispute. Whether the president has the authority to demote the chair and replace him or her with a sitting governor isn’t clear. When he was in office, Trump privately contemplated dismissing Powell but never did so, in part because his advisers told him he didn’t have the authority.

In a second term, Trump would face two differences from his first term on Fed policy.

First, the central bank’s seven-person board isn’t scheduled to have any vacancies until January 2026. In his first year as president, Trump had the opportunity to fill four vacancies on the Fed’s board, plus a fifth when Chairwoman Janet Yellen departed in 2018.

Second, inflation is a more serious concern. In 2017, Fed officials were gently raising interest rates from very low levels. Inflation only briefly edged up to the Fed’s 2% target, and inflation-adjusted interest rates were above zero for only a few months. By contrast, the Fed lifted rates last year to the highest level since 2001 and has held them there to combat inflation that soared to a four-decade high in 2022 and is still running above the Fed’s target.

The Fed has a mandate to keep inflation low and labor markets healthy. Presidents have the ability to influence the Fed through their appointments, but that authority can be limited because of the checks and balances built into the central-bank system.

Interest-rate policy is decided by the Federal Open Market Committee, which includes seven members of the Washington-based board of governors, who are appointed by the president and confirmed by the Senate, and 12 presidents of regional Fed banks, who are appointed by those banks’ private boards. The governors and the New York Fed president have a permanent vote, and four reserve bank presidents rotate onto the committee for one year at a time.

Some Trump advisers want the president to make a sustained effort to remake the central bank by encouraging closer ties between the administration and the Fed’s board. They think the central bank and its backers in Washington and on Wall Street have made a fetish of the Fed’s operational autonomy, sometimes referred to as its independence, to a degree that isn’t supported by constitutional law and isn’t good for the economy.

The draft document written by the group of Trump advisers would, among other matters, roll back some of the Fed’s autonomy in regulatory policy by subjecting the agency to the review process applied to other executive-branch agencies within the Office of Management and Budget when issuing new regulations or rules. It would also call for a more muscular role for the Treasury Department in overseeing any emergency lending programs that are done jointly with the Fed.

Installing a loyalist at the Fed could be difficult because the central bank’s leaders have been haunted by the example of Arthur Burns, who headed the central bank from 1970 to 1978. Burns was a highly credentialed economist, but he is remembered for failing to corral the runaway inflation that ended only after Paul Volcker put the economy through two painful recessions in the early 1980s.

In addition to other missteps, Burns was regarded by historians (and some former colleagues) as being overly preoccupied with currying favor with the president. Since then, central bankers have fought to preserve their political autonomy.

In 2017, Trump’s advisers persuaded him to elevate Powell, at the time a Fed governor, to lead the central bank, in part because they feared Trump would retain Yellen, a Democrat who is currently the Treasury secretary. The silver-haired Powell, who was a private-equity investor after serving in the administration of President George H.W. Bush, had publicly supported Yellen’s policy of keeping interest rates at very low levels.

Whatever illusions Trump enjoyed about Powell’s pliability were dashed in 2018, when the Fed continued to lift interest rates. Trump began an unusual campaign of publicly browbeating Powell, first for raising rates and later for not lowering them enough.

Powell publicly resisted such pressure. “We’re human. We’ll make mistakes—I hope not frequently,” Powell said in 2019. “But we won’t make mistakes of integrity or character.”

Write to Andrew Restuccia at [email protected], Nick Timiraos at [email protected] and Alex Leary at [email protected]