Donald Trump has been bullying Federal Reserve Chair Jerome Powell—calling him “too late,” insulting his intelligence, and trying to gin up a case that Powell spent too much on renovations of the agency’s headquarters as a pretext for firing him. The New York Times recently observed that the two men have a “toxic relationship,” which is true, as far as it goes.
But the actual reason for the president’s hostility is neither alleged cost overruns nor Powell’s ability to manage the business cycle. Trump doesn’t think Powell is bad at his job. He objects to the job itself.
The Federal Reserve’s assignment is to steward the long-term interests of the U.S. economy—even at the occasional expense of short-term pain—by balancing the twin objectives of suppressing inflation and managing the unemployment rate. Trump, however, believes that the Fed’s objective should be to speed up the economy under Republican administrations and slow it down under Democratic ones. To the extent that the central bank balances unemployment and inflation, he would like to see the pain of high unemployment shifted onto Democratic administrations so that Republican ones can benefit from rapid economic growth.
Trump’s philosophy on monetary policy is easy to define because he has been publicly vilifying the Fed for at least a decade and a half. His opinions shift, but they shift predictably between two forms, with no relationship to economic circumstances. If the president is a Democrat, Trump complains that interest rates are too low. If the president is a Republican, he complains that they’re too high.
During the Obama years, the U.S. economy featured low inflation and elevated unemployment as it recovered from the Great Recession. Trump nonetheless spent that time complaining about low interest rates. “The Fed’s reckless monetary policies will cause problems in the years to come,” he tweeted in 2011. “The Fed has to be reined in or we will soon be Greece.” Five years later, with inflation still below target and the job market still recovering, he was still at it. “They’re keeping the rates down so that everything else doesn’t go down,” Trump complained in 2016. “We have a very false economy.”
Then Trump became president, and abruptly reversed his position. “I do like a low-interest-rate policy, I must be honest with you,” he told The Wall Street Journal in April 2017. As the Federal Reserve began raising rates, which it generally does when the economy is running hot, Trump denounced those moves. He pushed repeatedly for lower rates, even when the economy was at its peak. “I think they should drop rates and get rid of quantitative tightening,” he said in 2019. “You would see a rocket ship.”
At that time, rates were historically low. That changed after the pandemic sent prices soaring in 2021. Did Trump push back on the Fed’s decision to raise rates to combat inflation? Of course not, because Joe Biden was now president. Last October, Trump denounced Powell for easing interest rates by half a percentage point. “It was too big a cut, and everyone knows that was a political maneuver that they tried to do before the election,” he claimed. Almost immediately after winning his second term, however, he resumed his public drumbeat for cheaper money, a demand he has now backed with the threat of firing Powell.
Whether Trump will follow through on that threat remains unclear, as does whether the courts would allow him to. Even if Trump eventually installs a more pliant figure in Powell’s place (his term as Fed chair expires next year), experts question whether that would actually lead to reduced interest rates. If the Fed loses credibility in the market, borrowing costs could paradoxically get even higher.
Trump does not appear to have any master plan for how the Fed should function in a world in which he has compromised its independence. For one thing, he doesn’t believe that independence is possible. Laced through his commentary about the Fed over the years is a belief that its commitment to apolitical economic stewardship is a facade hiding naked partisanship. “Janet Yellen is highly political, and she’s not raising rates for a very specific reason,” he said a decade ago: “because Obama told her not to, because he wants to be out playing golf in a year from now and he wants to be doing other things, and he doesn’t want to see a big bubble burst during his administration.”
Trump offered the same diagnosis when Powell was preparing to cut rates last year. “I think he’s political,” he told Fox News. “I think he’s going to do something to probably help the Democrats, I think, if he lowers interest rates.”
Just as Trump is convinced that every president has secretly deployed the Justice Department for their own partisan ends, he believes that monetary policy is nothing but a way to win elections. Trying to advance the national interest, rather than some venal end goal, is a foreign concept. Economic analysts are now trying to predict what would happen under a regime in which the Fed chair is merely following the president’s short-term whims. Trump’s convictions begin with the premise that this is the world that has always existed.
