President-elect Donald Trump’s return to the White House already carried the potential for sweeping changes to the Federal Reserve. But now a growing question is not how the central bank will operate under Trump but if it’ll continue to operate at all.
Elon Musk, a key Trump backer who is expected to have considerable sway in helping shape Trump’s policies, included a “100” emoji while resharing Republican Sen. Mike Lee of Utah’s post on X calling for abolishing the Fed.
“The Executive Branch should be under the direction of the president,” Lee said Thursday in a post on X, hours after Fed Chair Jerome Powell told reporters he wouldn’t resign if Trump asked him to. “The Federal Reserve is one of many examples of how we’ve deviated from the Constitution in that regard,” Lee added. “Yet another reason why we should #EndTheFed.”
Asked where Trump stands on the matter, Trump-Vance transition spokesperson Karoline Leavitt told CNN: “Policy should only be deemed official if it comes from President Trump directly.”
Calls to abolish the Fed are hardly new. Former congressman Ron Paul, who ran for president once as a Libertarian and twice as a Republican, published a book in 2009 titled “End the Fed.”
Then in June, Republican Rep. Thomas Massie of Kentucky and Lee introduced corresponding bills aimed at uprooting the nation’s central bank and shifting its responsibilities to the Treasury Department.
But thus far, Trump has not publicly voiced his support for dismantling the Fed. On the campaign trail, he has, however, advocated for changing the central bank’s rulebook, to the dismay of many economists.
Challenging the Fed’s independence
“The American people re-elected President Trump by a resounding margin giving him a mandate to implement the promises he made on the campaign trail. He will deliver,” Leavitt said in an emailed statement to CNN.
Those promises include bringing interest rates “way down,” which Trump vowed to do if elected at the National Association of Black Journalists’ annual conference in August. Presidents, however, don’t have any direct influence over the rates Americans pay to borrow money.
For over 70 years, it’s been the duty of the central bank to set rates at levels aimed at fulfilling its congressional mandate for price stability and maximum employment. And throughout that time, Congress has also guaranteed the Fed’s ability to act as an independent body, devoid of any political interference.
That’s empowered Fed officials to make interest rate decisions that aren’t necessarily popular but could help the nation’s economy in the long run.
For instance, central bankers resisted calls to lower rates, instead opting to keep rates at a two-decade high for a year to rein in stubborn inflation. It wasn’t until two months ago that they finally cut rates as inflation cooled to just shy of the Fed’s 2% target.
But on the campaign trail, Trump floated requiring Fed officials to consult with him on interest rate decisions. That could lead to pressure on Fed officials to keep rates lower to satisfy Trump’s wishes, which in turn could reignite inflation.
During his first term, Trump also threatened to remove or demote Fed Chair Jerome Powell, whom he has at times blamed for keeping interest rates too high.
It’s unclear if Trump has the legal authority to overhaul the Fed’s independence on his own, let alone at all, or remove a Fed appointee before their term expires. On the latter, Powell, a lawyer himself, made his view abundantly clear when asked by a reporter at last week’s press conference after the Fed’s two-day monetary policy meeting. “Not permitted under the law,” he briskly responded.
That’s because the head of America’s central bank can only be fired “for cause,” as specified in the Federal Reserve Act. The exact interpretation of what would constitute a for-cause firing has not been precisely defined, but it’s reasonable to assume that it would entail a lot more than just having policy differences with the president.
A spokesperson for the Fed declined to comment.
Testing the waters
If there’s any time for Trump to test the Fed’s ability to maintain its status quo, it would probably be in 2025. While the balance of power in the House hasn’t been determined, Republicans have majority control of the Senate. Additionally, six of the nine Supreme Court justices were appointed by Republican presidents and half of those six were appointed by Trump in his first term.
But anyone challenging the Fed in the nation’s highest court shouldn’t expect to necessarily come out victorious. In a 7-2 court ruling this year, the Supreme Court ruled the Consumer Financial Protection Bureau could continue to operate in its current form despite many Republican lawmakers’ arguments that its structure was unconstitutional.
And last month, the court declined to hear a case that threatened to dismantle the independent Consumer Product Safety Commission. Like officials sitting on the Fed’s Board of Governors, members of the Consumer Product Safety Commission’s board can only be removed by a president for cause.
