In 2018, President Donald Trump was displeased with the Federal Reserve’s monetary policy, despite the strong economic performance at the time. The Fed, led by Trump-appointed Chairman Jerome Powell, was gradually increasing interest rates to prevent the economy from overheating.
Trump’s frustration with these rate hikes led him to harshly criticize Powell, reportedly calling him an “idiot” and instructing his commerce secretary, Wilbur Ross, to intervene and convince Powell to reverse his course. Trump even hinted at the possibility of retracting his support for Powell’s nomination if the rate hikes continued.
Wilbur Ross recounts in his upcoming memoir that he initially advised Trump against threatening the independence of the Federal Reserve but eventually agreed to contact Powell as the president insisted.
When Ross approached Powell for a discussion, Powell refused to engage deeply, expressing concern that anything he said would be relayed back to Trump.
The conversation ended without any significant breakthrough, but Ross noted that Powell adjusted his policy stance a few weeks later, though it remains uncertain whether the call influenced this decision.
Throughout 2018 and 2019, Trump did not shy away from publicly pressuring the Federal Reserve. He repeatedly urged the agency to lower interest rates, accusing Powell of mismanaging the economy. Even after the Fed began reducing rates in 2019, Trump’s criticism persisted.
His frustration was not solely about economic concerns; Trump had personal financial stakes in the matter, as he held over $300 million in variable-interest loans, making him vulnerable to increased rates, which would lead to higher interest payments and a potential devaluation of his properties.
Ross’s story underscores Trump’s readiness to confront the Federal Reserve’s traditional independence from political influence. The independence of central banks, such as the Fed, is widely regarded as crucial for maintaining economic stability, with historical examples from countries like Venezuela and Turkey showing the risks of politically controlled monetary policies.
Powell, aware of the significance of the Fed’s autonomy, emphasized the agency’s commitment to objective, data-driven decision-making during a 2019 Senate hearing.
Looking ahead, there are signs that Trump might take even more aggressive steps to assert control over the Federal Reserve if he were to win a second term. He has suggested that the president should have a greater say in interest rate decisions and is reportedly considering plans that could include removing Powell as Fed chair.
Such actions could lead to increased political interference in the Fed’s operations, raising concerns about the potential for long-term economic instability as a result of undermining the central bank’s independence.
