In the context of the global economy facing numerous challenges, the role and independence of the US Federal Reserve (Fed) – the world’s most powerful central bank – are becoming the focal point of an unprecedented power struggle. Since the beginning of the year, former President Donald Trump has continuously intensified pressure, raising significant questions about the Fed’s ability to maintain its independence and the potential for a reshaping of US monetary policy.
President Trump’s “Hostile Takeover” Bid for the Fed: Heated Developments
President Trump’s campaign to pressure the Fed has not been limited to mere calls but has transformed into a series of concrete, decisive actions:
- Calls for interest rate cuts and threats of dismissal: Mr. Trump has repeatedly and publicly called on the Fed to lower interest rates, while not hesitating to mention “firing Fed Chair Powell” more than 10 times, an unprecedented move for a US President.
- Searching for a replacement for Chair Powell: Treasury Secretary Bessent, under Trump’s administration, has actively sought and begun interviewing potential candidates to replace Chair Powell when his term ends mid-next year.
- High-level personnel changes: Fed Governor Kugler unexpectedly resigned without stating a reason, and immediately thereafter, Stephen Miran was appointed as the replacement Governor.
- Lawsuits related to renovation projects: The Trump administration even considered suing Mr. Powell in connection with the renovation project of the Fed’s headquarters in Washington after a visit to the site.
- Dismissal of Fed Governor Cook: The most recent shocking move was the dismissal of Fed Governor Cook on charges of mortgage fraud – an unprecedented action in the Fed’s history, raising serious concerns about political interference.
The Key to Power: The Federal Open Market Committee (FOMC)
So, how is President Trump attempting to control an institution designed to operate independently? The key lies with the Fed’s interest-rate setting committee, the Federal Open Market Committee (FOMC). The FOMC has 19 members, but only 12 have voting rights, determining interest rates for the entire United States. This voting structure includes:
- 7 votes from the Board of Governors in Washington.
- 5 votes from the regional Fed Presidents (rotating from the 12 Fed branches, except for the New York Fed which always has a vote).
Shifting Vote Proportions
Currently, among the 7 governor seats, two were appointed by President Trump: Christopher Waller and Michelle Bowman. Both have supported interest rate cuts since July, marking the first time in 30 years that two Board of Governors members have cast dissenting votes. If Governor Miran is officially confirmed by the Senate and President Trump succeeds in dismissing Ms. Cook, he will have a 4-3 majority on the Board of Governors – a significant step toward controlling interest rate policy.
The remaining challenge lies with the regional Fed Presidents who have voting rights this year. Collins (Fed Boston) and Goolsbee (Fed Chicago) have already signaled that they might cut interest rates as early as September. However, Williams (Fed New York), Musalem (Fed St. Louis), and Schmid (Fed Kansas) have all expressed views against rushing interest rate cuts, instead advocating for more conclusive data. President Trump only needs to persuade at least 1 of these 3 individuals to secure 7/12 votes, enough to change monetary policy. Concurrently, the Trump administration is also actively considering 11 potential candidates to replace Chair Powell when his term ends.
Consequences and an Uncertain Future
Expert Charu Chanana from Saxo Bank notes that the likelihood of earlier interest rate cuts could increase after Governor Cook’s dismissal. However, this move also severely undermines the Fed’s independence and amplifies instability within America’s institutional system, which is generally considered robust.
The power struggle between President Trump and the Fed is not just about interest rates or monetary policy, but also about the core principle of institutional independence. Can the Fed withstand this unprecedented pressure, or will US monetary policy be dictated by political will? The future of the US economy and even the stability of the global financial system depend on the outcome of this fateful confrontation.
