Will Trump put the Fed on a leash?

Advisors to Donald Trump are apparently considering how he could exert greater influence over the Fed's monetary policy decisions if he wins the election.

Bernd Weidensteiner, Dr. Christoph Balz

Commerzbank Economic Research

May 24 2024

To this end, Fed Chairman Powell might be forced out of office early. We explain the background.

Is team Trump planning to weaken the Fed's independence, ...

According to newspaper reports, advisors and supporters of Donald Trump are considering how he could exert greater influence on the US Federal Reserve following a successful presidential election. Although Trump appointed the current Fed Chairman Powell during his first term in office, he was then very dissatisfied with his policy and accused him of premature interest rate hikes and hesitant interest rate cuts, among other things.

According to the press, possible options include the President being consulted on interest rate decisions or the Treasury Department acting more as a cherck on the central bank. It is assumed that Trump has the authority to dismiss Powell before the end of his term as Fed Chairman and replace him with a successor he likes. Such changes would have the potential to massively alter monetary policy and trigger considerable turbulence in the financial markets.

... and can he exchange the Fed's leadership for this?

According to the Federal Reserve Act, the President nominates the seven governors who are members of the central, Washington-based Federal Reserve Board.[1] The President also nominates one of them as the Chair of the Board (currently Jerome Powell), and one as the Vice Chair. As all these nominations must be approved by the Senate, President Trump's leeway in appointing new Board members would depend on the outcome of the Senate elections in November. Should the Democrats defend their majority there, this would be very limited from the outset.

Another problem with a reorganization of the Board is that all seven seats are currently occupied. However, members occasionally leave early to take up positions in the private sector. If that does not happen, there would not be another vacancy until January 2026. Powell's term of office as a member ends in 2028 and as Chairman of the Board in May 2026.