Donald J. Trump spent his first presidency attacking the Federal Reserve, pushing policymakers to cut interest rates and calling Fed officials names that ranged from “boneheads” to “enemy.”
That rhetoric is likely to make a return to the White House with Mr. Trump. The Republican has been promising that interest rates will come down on his watch — even though rates are set by the politically independent Fed and the president has no direct control over them.
The question looming over markets and the Fed itself is whether Mr. Trump will do more than just talk this time as he tries to get his way. The Fed is in the process of cutting rates, but it is unclear whether it will do so fast enough to please Mr. Trump.
Congress granted the Fed independence from the White House so that central bankers would have the freedom to make policy decisions that brought near-term pain but long-term benefits. Higher rates are unpopular with consumers and with incumbent politicians, for instance, though they can leave the economy on a more sustainable path over time.
But some in Wall Street and in political circles worry that the Fed’s insulation from politics could come under pressure in the years ahead. Here’s what that might look like.
Trump Could Shake Up Fed Personnel
Mr. Trump first elevated Jerome H. Powell, the Fed chair, to his current role in early 2018. He then quickly soured on Mr. Powell, who resisted his calls to sharply lower interest rates.
Mr. Trump flirted with trying to fire or demote Mr. Powell during his first term in office, but his team concluded that doing so would be legally complicated and might be impossible.
In recent months, Mr. Trump has said he would not fire the Fed chair during a second presidency. Even so, he will have a chance to replace the central bank chief before long, because Mr. Powell’s leadership term ends in May 2026.
Other Fed jobs are set to gradually come open during Mr. Trump’s presidency. Mr. Trump will be able to replace one member of the Fed’s seven-member Board of Governors in early 2026, the leadership term for the Fed’s vice chair for bank supervision will end in mid-2026, and another Fed vice chair’s term concludes in 2027.
“Trump’s ability to reshape the Fed will likely only be realized slowly over time,” Michael Feroli, chief U.S. economist at J.P. Morgan, wrote in an analysis.
Whomever Mr. Trump nominates to fill those Fed roles will need to pass Senate confirmation. Because Republicans have won control of the body, the president-elect will have lot of latitude to pick someone whose views mirror his own.
Bully Pulpit Pressure Could Be Real
Who is sitting at the Fed could matter, because Mr. Trump will also almost certainly push for low interest rates both in public and in private, based on his recent comments about the Fed.
In doing so, he will once again break with a decades-long tradition in which presidents typically avoid talking about central bank policy out of deference to the institution’s independence.
But the line between the White House and the Fed could become blurry if Mr. Trump appoints a Fed chair who is willing to do his bidding.
There’s precedent. There have been historical instances in which Fed chairs bent to a president’s will and set interest rates lower than would have been ideal.
Arthur Burns famously kept rates too low for too long when he was Fed chair after haranguing from President Richard Nixon. That decision is widely blamed for helping to pave the way for runaway inflation in the 1970s.
More Creative Options?
Every White House replaces personnel at the Fed, and before Bill Clinton’s presidency, it was even somewhat normal for the executive office to complain about central bank interest rates.
One big question is whether Mr. Trump would try more creative approaches to influence the central bank.
For instance, one Trump adviser has publicly suggested that the president-elect should announce his choice to replace Mr. Powell well before the central banker’s term as chair ends in 2026.
The logic? As long as Wall Street believed that the “shadow” Fed chair would in fact be confirmed, investors might begin to anticipate lower interest rates — and the mere expectation would bring mortgage rates and business borrowing rates down.
Of course, such a plan could run into problems. Even Republican senators might prove unwilling to confirm someone who is seen as political. And it could also push inflation expectations up, as investors increasingly anticipated that the Fed would not react to higher price increases by lifting borrowing costs.
“I wouldn’t expect that markets would completely ignore them,” said Blerina Uruci, chief U.S. economist at T. Rowe Price, said of a possible “shadow” chair.
And some Republican financial regulation experts have argued that while the Fed chair may not be subject to being fired, the Fed’s top bank cop might be.
That role is currently held by Michael Barr, a Biden pick who has recently angered the industry and its lobbyists with a failed attempt at increasing how much of a safety cushion banks need to hold. Mr. Barr’s term expires in 2026, and Mr. Trump showed a strong preference for lighter regulation during his first presidency.
Scott Alvarez, a former general counsel at the Fed Board, said he thought that firing the Fed’s vice chair for supervision would run into the same legal blocks as an attempt to fire the Fed chair. And once it went to the courts, the legal wrangling over an attempt to get rid of Mr. Barr would most likely outlast his actual term.
“It seems to me like it’s more hassle than it’s worth from where Trump’s sitting,” said Ian Katz, managing director at the research firm Capital Alpha. “And it would face a legal challenge.”
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