- Trump's victory raises questions about the Federal Reserve
- The Federal Reserve (FED) faces potential challenges to its independence
- Legal obstacles to Trump's plans
Trump's victory raises questions about the Federal Reserve
Donald Trump, who won the US presidential election, is set to return to the White House, and this return could mean major changes at the Federal Reserve (Fed). However, the question is increasingly being asked whether this central institution will continue to function as it has done up to now, or even whether it will be allowed to continue to exist at all.
Recently, Elon Musk, an entrepreneur who strongly supports Trump, posted a '100' emoji on the social platform 'X', expressing his support for Senator Mike Lee's call for the abolition of the Federal Reserve. Senator Lee wrote in his post:
"The executive branch must be subordinate to the president. The Federal Reserve is one of the many institutions where we have departed from this principle," adding the hashtag "#EndTheFed".
Trump-Vance transition spokeswoman Caroline Leavitt, responding to CNN pointed out:
"A policy is only considered official when it comes directly from President Trump."
There is currently no official Trump position on the Fed's dissolution, but during the campaign, he advocated radical changes to the Fed's reform, which some economists are concerned about.
The Federal Reserve (FED) faces potential challenges to its independence
Caroline Leavitt added: "The American people overwhelmingly re-elected President Trump, giving him a mandate to deliver on his campaign promises. He will do just that." One of those promises is to lower interest rates, which Trump promised to do if elected at a meeting of the National Association of Black Journalists in September.
The US President does not directly influence interest rates, but the Fed sets rates to ensure stable prices and maximum employment. This independence allows the Federal Reserve to take decisions that may be unpopular but are beneficial to the country's economy in the long run.
In recent years, the central bank has kept interest rates high to curb inflation. However, Mr Trump has floated the idea that the Fed's managers should consult him on interest rates, which could lead to downward pressure on rates, thereby accelerating inflation.
During his first term in office, Trump also threatened to sack or demote Federal Reserve Chairman Jerome Powell, whom he often reproached for high interest rates.
Legal obstacles to Trump's plans
Legislation makes it unclear whether Mr Trump would be able to change the Federal Reserve's independence or dismiss its chairman early. Asked whether he would resign if Trump asked him to do so, Mr Powell replied curtly: "No." The head of the Federal Reserve can only be dismissed for "good cause", as defined in the Federal Reserve Act, and good cause does not include a simple disagreement on policy.
If Mr Trump were actually to try to reform the Fed, 2025 could be the most opportune time to do so. The Republicans currently control the Senate, and six of the nine Supreme Court judges have been appointed by Republican presidents, three of whom were appointed by Mr Trump himself.
However, a recent Supreme Court decision shows that any attempt to influence independent agencies directly may be difficult. Earlier this year, the Court ruled that the Consumer Financial Protection Bureau can continue to operate despite claims by some Republican politicians that its structure is unconstitutional.
Although the court recently rejected a similar case concerning the Independent Consumer Financial Protection Commission, it shows that even with its current Republican composition, the Supreme Court is not subject to pressure from one party.
