Something that probably flies under the radar for most but would have enormous ramifications for the everyday American. Trump's team has quietly drafted a plan that would limit the scope of the central bank's autonomy and allow the president to set interest rates as seen fit.
Trump's allies quietly plan to curtail central bank's authority
Trump's allies quietly plan to curtail central bank's authority
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Former Trump administration officials and other supporters of the presumptive GOP nominee have in recent months discussed a range of proposals, from incremental policy changes to a long-shot assertion that the president himself should play a role in setting interest rates.
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The group of Trump allies argues that he should be consulted on interest-rate decisions, and the draft document recommends subjecting Fed regulations to White House review and more forcefully using the Treasury Department as a check on the central bank.
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It couldn't be determined whether Trump is aware of or signed off on the effort, but some people close to the discussions believe the work has received the blessing of the former president.
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Trump, who often tells advisers that he loves low interest rates and expressed frustration that he couldn't influence them as president, hasn't yet decided exactly how he would approach the Fed in a second term
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The discussions have alarmed some Trump advisers with more-traditional views of the role of the Fed, as well as Republican lawmakers. They worry that chiseling away at unwritten norms around keeping politics at arm's length from Fed decisions could backfire, particularly if political interference leads investors to conclude that the central bank is willing to tolerate higher inflation.
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Sen. Thom Tillis (R., N.C.) said he, too, wouldn't condone efforts by a president, including Trump, to interfere with monetary policy. "I have to think about the Fed for the next 50 years, not the next four, and independence is important," he said.
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A Fed appointment is akin to putting a jurist on the Supreme Court: Once someone is installed, it is difficult to force him or her out. Supreme Court justices have a lifetime appointment, and Fed governors have 14-year terms to provide a degree of independence from politics.
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Lawyers who have studied the issue believe the president lacks the power to fire Fed governors over a policy dispute. Whether the president has the authority to demote the chair and replace him or her with a sitting governor isn't clear. When he was in office, Trump privately contemplated dismissing Powell but never did so, in part because his advisers told him he didn't have the authority.
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"The market would react very badly to any effort to tame the Fed, and we think this would cause the administration to back off," said Krishna Guha, vice chairman at Evercore ISI, in a note to clients Friday.
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Some Trump advisers want the president to make a sustained effort to remake the central bank by encouraging closer ties between the administration and the Fed's board. They think the central bank and its backers in Washington and on Wall Street have made a fetish of the Fed's operational autonomy, sometimes referred to as its independence, to a degree that isn't supported by constitutional law and isn't good for the economy.
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Installing a loyalist at the Fed could be difficult because the central bank's leaders have been haunted by the example of Arthur Burns, who headed the central bank from 1970 to 1978. Burns was a highly credentialed economist, but he is remembered for failing to corral the runaway inflation that ended only after Paul Volcker put the economy through two painful recessions in the early 1980s... Burns was regarded by historians (and some former colleagues) as being overly preoccupied with currying favor with the president. Since then, central bankers have fought to preserve their political autonomy.
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Whatever illusions Trump enjoyed about Powell's pliability were dashed in 2018, when the Fed continued to lift interest rates. Trump began an unusual campaign of publicly browbeating Powell, first for raising rates and later for not lowering them enough.
