The Fed Under Pressure: Trump and the Erosion of Monetary Independence

Since its beginning, the U.S. Federal Reserve has prided itself on independence, shielding monetary policy from short-term political pressures. Yet with Donald Trump’s second term in office, that independence has faced one of its greatest tests, as the president openly criticises its interest rate decisions, threatening to fire Fed officials, blurring the line between political power and economic policy. 

Donald Trump’s distaste towards the Fed began shortly after his inauguration, where he had repeatedly lashed out against key officials, including its chair – Jerome Powell, labelling him a ‘numbskull’ due to his refusal to cut rates this year. Tensions further escalated recently when the White House announced the immediate sacking of Fed governor, Lisa Cook, in late August. Such interference threatens two core pillars of the U.S. Financial System. First, it threatens the perceived independence of the Federal Reserve, undermining confidence that monetary decisions are based on economic realities rather than political whims. Second, it creates uncertainty in financial markets, where investors rely on the Fed’s impartiality. The Federal Reserve’s autonomy is foundational to maintaining the health of the U.S. economy, and such political interference risks eroding this cornerstone. An independent Fed can make decisions based on economic data and long-term objectives, making decisions that may be politically unpopular, such as increasing rates to control inflation or stimulate employment. When such decisions are influenced by political pressures, it may undermine market confidence, as investors doubt whether monetary policies are designed for economic growth or electoral advantages. 

It is crucial to first understand Donald Trump’s demands of slashing interest rates to less than 1%, a dramatic departure from the current range of 4.25% to 4.5%. By reducing interest rates significantly, this can reduce the short-term cost of borrowing for households and businesses, as well as reducing the return on savings for consumers, thus leading to increased investments and consumption. This can boost GDP growth, which was at 3.3% in Q2 of 2025, increasing from the -0.5% in Q1, as well as push stock markets higher and reduce unemployment, all outcomes Trump points to as measures of his economic success. Moreover, with the 2026 Midterm elections approaching, the political landscape is becoming increasingly charged. By cutting rates and creating a booming economy in the short-term, this would allow Trump to present himself as the architect of renewed prosperity, strengthening the Republican Party’s electoral appeal. Trump has also repeatedly tied his presidency to the performance of U.S. stock markets, describing rising indices as indications of his leadership. By cutting rates, this would push investors into the equity market, instead of bonds, thus inflating stock prices – a direct benefit to Trump’s narrative of economic strength. 

However, through investigating such demands more thoroughly, Donald Trump’s confrontations with the Federal Reserve appear highly illogical. Experts warn that undermining this independence could have serious consequences: Investopedia notes that politicising the Fed might raise, rather than lower, long-term borrowing costs, including mortgages, as inflationary pressures rise. A decision to cut base rates as dramatically as he wishes would run counter to prevailing global monetary trends. In the United Kingdom, for instance, the Bank of England has lowered base rates at 4%, after maintaining rates at 5.25% for a year, in an attempt to counter inflationary pressures, while the European Central Bank and other developed economies have similarly kept rates elevated to prevent price instability post-COVID. Were the Fed to follow Trump’s demands, it would not only risk fueling domestic inflation, but weaken the dollar and trigger capital outflows, as investors could seek higher returns abroad. Artificially cheap borrowing could overstimulate demand, fuel inflationary pressures from its current 2.7%, and undermine the dollar’s strength by driving investors towards markets offering higher returns. Historical precedent reinforces such dangers: Nixon’s interference with the Fed in the early 1970s, aimed at securing short-term economic growth before his re-election, contributed to the stagflation crisis that plagued the decade. More recently in 2014, Turkey under President Erdogan illustrates the perils of politicised monetary policies: between 2019 and 2024, he fired and replaced five central bank governors for their refusal to cut interest rates, and when the central bank eventually succumbed to Erdogan’s pressures, the lira collapsed and inflation soared above 85%. Economists today echo such warnings. Nearly 600 Economists, including Nobel Laureates Joseph Stiglitz, Claudia Goldin, and Paul Romer, signed an open letter urging respect for the principle of central bank independence and due process in the case of the attempted removal of Federal Reserve Board Governor Lisa Cook. A Reuters poll conducted in July 2025 has also revealed that over 70% of economists expressed concern about the autonomy of the U.S. Federal Reserve, citing mounting political pressures, particularly from President Trump. These examples clearly underscore that whilst Trump’s push for cuts in interest rates may carry short-term political appeal, the economic consequences may mirror those seen in countries where politicised monetary policies have ended disastrously. 

Whilst Donald Trump’s attempts to pressure the Federal Reserve into cutting rates may offer short-term political and electoral gains, its long-term economic consequences are striking. Historical examples, alongside expert commentary, have illustrated the dangers of politicising the U.S.’s monetary policy, leading to soaring inflation, higher borrowing costs for businesses and consumers, and lasting economic damage that no short-term political gain can justify.