Trump’s Assault on the Fed: A Threat to More Than Just Independence

The recent departure of Jerome Powell as chair of the Federal Reserve has reignited tensions between the central bank and the White House. While Powell’s tenure was marked by significant accomplishments, his lasting legacy may be his defense of the Fed’s independence in the face of an increasingly imperial presidency.

The notion that the Fed’s independence is a settled matter, enshrined in the nation’s constitution as a bulwark against presidential overreach, is being tested. The current administration views the central bank as a tool for advancing its own interests, rather than an independent institution. This assault on institutional integrity has far-reaching consequences, threatening to undermine the very foundations of American democracy.

The case of Lisa Cook, a board member accused by Trump of lying on a mortgage application and subsequently fired “for cause,” illustrates this trend. Lower courts have ruled against Cook’s removal, but the supreme court has yet to weigh in – a delay that is likely intentional, given the president’s desire to test the limits of his power.

The supreme court’s recent decisions have dismantled the legal protections that shielded independent agencies from presidential whims, allowing Trump to fire members of the National Labor Relations Board and other key bodies with impunity. This represents a significant erosion of institutional integrity, which is not merely about restoring presidential power but rather about undermining the rule of law.

Justice Ketanji Brown Jackson has observed that “having a president come in and fire all the scientists, doctors, economists, and PhDs, replacing them with loyalists who don’t know anything, is not in the best interest of the citizens of the United States.” Despite this, the White House continues to push forward with its assault on institutional integrity.

Markets remain skeptical, however. Long-term interest rates and the dollar’s exchange rate have shown remarkable resilience – a testament to the enduring faith in the central bank’s independence. This implicit understanding is fragile, though: markets trust the legal system, particularly the supreme court, to defend the Fed’s independence.

As Randall Kroszner noted at a recent conference on central bank independence, “markets implicitly rely on an assumption about a broader political consensus to sustain credibility of the central bank over time.” If this understanding is broken, the consequences could be catastrophic – not just for the central bank itself but for the entire American economy and the rule of law.

The recent sparring between Trump and Powell has been particularly telling. While Powell’s decision to stay on the Fed’s board after stepping down as chair may have deprived Trump of a seat to fill, it also served as a potent reminder that even in defeat, the president still holds significant leverage – and will not hesitate to use it.

History provides lessons on this front: central banks have long been vulnerable to presidential pressure, with often disastrous consequences for the economy. From Narendra Modi’s India to Recep Tayyip Erdoğan’s Turkey to Richard Nixon-era America, we see that this vulnerability can ignite a full-blown economic crisis.

In this context, Trump’s assault on the Fed represents a uniquely pernicious threat – not just because it seeks to undermine institutional integrity but also because it has the potential to ignite an economic crisis. The markets may be calm now, but that is no guarantee of their continued tranquility in the face of an increasingly lawless presidency.

Ultimately, what this moment demands from us is a willingness to confront the darker aspects of American politics – and to recognize the Fed’s independence as more than just a convenient abstraction. It represents a bulwark against presidential overreach, a last line of defense against authoritarianism that has long threatened our democracy. As we stand at this crossroads, it is time to ask ourselves: what will we do when push comes to shove? Will we uphold the Fed’s independence, or will we allow Trump’s assault on institutional integrity to succeed? The answer to this question will shape not just the fate of the central bank itself but that of our democracy – and the very fabric of American governance.