Despite repeated attacks on the Federal Reserve and calls for significant interest rate reductions by President Trump and his officials, significant legal, political and economic obstacles make it unlikely that the executive will gain any meaningful degree of control over monetary policy. Even a successful attempt to install a loyalist (or two) at the Federal Reserve would not lead to a shift toward a significantly different policy, let alone a broader diminution of the Fed’s independence. This comment analyzes the legal foundations of the Fed’s monetary policy independence, assesses the president’s ability to install loyalists at the Fed, and argues that institutional, political and economic factors make it unlikely that the Fed’s independence will be diminished under the Trump administration, continued attacks notwithstanding.
Legislation provides for robust safeguards supporting monetary policy independence
The Fed’s independence in terms of monetary policy rests on several acts of Congress.[1] The founding Federal Reserve Act (1913) provided for the independence of Fed governors who can only be removed “for cause”, meaning for misconduct in office, inefficiency or neglect of duty. The Banking Acts of 1933 and 1935 codified the relationship between the Fed and the executive and removed the treasury secretary from the Board of Governors. The Treasury-Fed Accord (1951), not a piece of congressional legislation, liberated the Fed from a prior, war-time-era commitment to support the treasury market, thereby providing it with operational independence to set monetary policy. Finally, the Federal Reserve Reform Act (1977) committed the Fed to promoting “the goals of maximum employment, stable prices, and moderate long-term interest rates.” It was not until 2012 that the Fed publicly defined “stable prices” to mean two-percent inflation, while failing to provide a numerical target for “maximum employment.”
Legal Foundations of Federal Reserve Monetary Policy Independence | |
Federal Reserve Act (1913) | Establishes Federal Reserve system; sets ten-year terms for governors, who can only be removed “cause” |
Banking Acts (1933) | Creates FOMC without giving voting rights to the Federal Reserve Board; establishes staggered twelve-year terms for governors |
Banking Acts (1935) | Shifts power from the regional reserve banks to the Board of Governors; codifies relationship between the Fed and the executive and legislative branches; raises governors’ terms to fourteen years |
Treasury-Fed Accord (1951) | Liberates Fed from commitment to cap long-term treasury yields and support treasury debt management |
Federal Reserve Reform Act (1977) | Commits Fed to “dual mandate” of promoting maximum employment and price stability |
As far as monetary policy is concerned, the Federal Reserve is structured as follows. The Federal Reserve Board of Governors (or Federal Reserve Board) is responsible for setting bank reserve requirements and the interest rate on excess reserves (see below). The Fed Board consists of seven members who serve non-renewable fourteen-year terms. Members need to be nominated by the president and confirmed by the Senate. Serving renewable four-year terms, the chairman and the vice chair (as well as the vice chair for supervision), who need to be board members, require separate nomination by the president and confirmation by the Senate. The Fed Board takes decisions by majority.
The Federal Open Market Committee (FOMC) is responsible for setting the Fed’s main policy rate, the federal funds rate, as well as the overnight reverse repo rate. The FOMC consists of the seven members of the Board of Governors, the New York Federal Reserve president and the other eleven regional Federal Reserve Bank presidents, only four of whom are eligible to vote (on a rotating basis) at any one time. Unlike the governors, the regional presidents are appointed by nine-member regional private sector boards for renewable five-year terms, subject to approval by the Board of Governors. FOMC decisions, including interest rate decisions, also require support from a majority of members.
Long, non-renewable, staggered terms for governors, Senate confirmation (for governors), the inability of the president to remove governors (except for cause) and the inability to remove or appoint regional Federal Reserve bank presidents help insulate monetary policy decisions from undue political influence by the executive. The COVID-19 crisis excepted, these institutional safeguards, combined with the Fed’s dual mandate of “price stability” and “maximum employment,” have allowed the Fed to successfully maintain low inflation for the past four and a half decades.
Other than rhetorical attacks, the most direct way for the president to influence monetary policy is to change the composition of the FOMC by stacking it with political loyalists (or individuals sharing the president’s policy preferences). However, barring unforeseen resignations, President Trump will only beable to appoint two new governors during the remainder of his time in office. He is about to replace Adriana Kugler, who resigned in August (and whose terms was originally going to expire in January 2026) and he will be able to replace Jerome Powell, whose term as governor expires in January 2028. The president will also have an opportunity nominate a new Fed chair when Powell’s terms as chair expires in May 2026. But even if the president managed to get two loyalists confirmed, including one of them as chair, it would not change the composition of the twelve-member FOMC much, nor its policy.
Member of the Board of Governors | Term Expires |
Adriana Kugler* | January 2026 (vacated seat in August)* |
Jerome Powell (chair) | January 2028* |
Christopher Waller | January 2030 |
Michael Barr | January 2032 |
Michelle Bowman (vice chair) | January 2034 |
Philip Jefferson | January 2036 |
Lisa Cook | January 2038 |
* Terms expiring during Trump presidency
The president could also try to remove Fed Board members “for cause”. (This is what the administration may be preparing to do by blaming Fed Chair Powell for the cost related to the renovation of the Fed’s D.C. headquarters.) If the president were to dismiss Powell as governor, the case would very likely be litigated and the case would end up before the Supreme Court. As per 1913 Federal Reserve Act, it is less clear that the same safeguard applies to position of Fed chair. However, even if the administration managed to dismiss Powell as chair, it would not be able to remove him as board member (other than “for cause”) and Powell could then decide to stay on as board member until January 2028, thus limiting the president’s ability to nominate a political loyalist to the Board and forcing him to choose among broadly “traditionally-minded” Board members.
Moreover, despite the ability to set the agenda, a loyalist Fed chair would need to win majority support from FOMC members in terms of monetary policy decisions. Just because historically the Fed chair rarely has been on the losing side of votes does not mean that a controversial, political Fed chair would be able to secure majorities for significant changes or shifts in monetary policy. Another (minor) obstacle arises from the fact that although the Fed chair, by convention, is also FOMC chair, the FOMC chair is not a legally defined position and FOMC members, by statute, could elect another committee member, instead of a controversial Fed chair. Granted, this would increase uncertainty and may raise concerns among investors, but it would also prevent a loyalist from heading up the FOMC.
The preceding analysis rests on the premise that present legal safeguards concerning Fed independence remain in place. The Trump administration often invokes the so-called unitary executive theory, which stipulates that the president has wide-ranging authority over the executive branch, including the authority to dismiss officials of independent agencies. In a recent decision, the Supreme Court ruled in favor of the administration’s decision to remove the heads of two independent government agencies. But in its decision the Court also made it clear that this decision would not apply to the Federal Reserve. [2] This makes it likely, though not certain, that the Supreme Court would balk at granting the president the ability to fire Fed officials at will, should the executive invoke such authority. On balance, this makes it unlikely that the administration would prevail legally, meaning that the president’s ability to remove Board members will remain highly restricted.
Barring unforeseen vacancies, the president will therefore be able to appoint only two new members to the seven-seat Fed Board, and two out of twelve FOMC members. This would not meaningfully affect the independence or monetary policy of the Fed, for the president’s ability to fire regional bank presidents, let alone replace with loyalists, is virtually nil, according to dominant legal opinion.[3]
Placing a couple of loyalists on the FOMC will be difficult, and likely not very effective
Apart from setting the federal funds rate, political loyalists could seek to weaken Fed policy by pushing for an upward adjustment of the two-percent inflation target or a further tweaking of the monetary policy framework.[4] But these decisions also require majority support on the FOMC. But it is the Fed Board, not the FOMC, that sets the interest rate on reserve balances (IORB). Under the current ample-reserves regime, a majority of governors could seek to lower the IORB, thus potentially compromising the FOMC’s ability to set a lower bound for the federal funds rate. Such a move is perhaps not very likely given how potentially damaging it would be for Fed credibility and financial instability it might cause. But either way, such a decision would require the support of a majority of governors, which would be easier than gaining majority support on the FOMC.[5]
For any of the above scenario to materialize, the president would need to dismiss a substantial number of governors to have the opportunity to be able to “gain” majorities on the Fed Board, let alone the FOMC. But the larger the number of dismissals (assuming they prove successful), the greater the economic-financial turmoil this would trigger, and the less likely such a move becomes politically judging by the president’s April decision to suspend reciprocal tariffs after their announcement triggered significant financial market volatility.
Moreover, even if the president managed to dismiss substantial numbers of governors, their replacement would require Senate confirmation, unless the president manages to make a recess appointment.[6] The Senate balked on several occasions at supporting and confirming controversial unofficial and official nominees during the first Trump term (e.g. Judy Shelton). The Republican’s present 53-47 majority would make it very difficult for a controversial political loyalist to be confirmed. Democrats would oppose such a candidate, as would, at least until the mid-terms, several retiring “traditional” Republican senators as well as some purple-state senators.[7] Finally, it is far from clear that Trump-nominated governors (or chair), even if confirmed, would do the president’s bidding once in office, something President Trump understands Quote: “Sometimes they’re all very good until you put them in there and then they don’t do so good.”
Federal Reserve independence will survive Trump administration
None of this means that attempts to fire Board members “for cause” (or other reasons) would not lead to market volatility. But legally, the obstacles to removing governors are extremely high, and the president lacks the ability to remove regional Reserve Bank presidents.
If the president managed to put one or two or even three loyalists on the Fed Board, that Fed monetary policy might become marginally more dovish than it would otherwise have been. But this would be very different from the Fed abandoning its commitment to price stability or forfeiting its independence. After all, there are almost always grounds for legitimate disagreement about the optimal course of monetary policy in view of the Fed’s price stability commitment. Placing two dovish governors on the FOMC would make the median members slightly more dovish without leading to a significantly more dovish policy given the need for majority support.
A more dovish policy would, all other things equal, lead to a moderately weaker dollar, moderately higher long-term interest rates and stronger equity markets. Meanwhile, a broader assault on the Fed in the guise of an attempt to dismiss several Board members, let alone regional presidents, would likely trigger severe market turmoil, at least initially until the legal situation is clarified.
Similarly, it would require a major weakening of Fed independence for the international role of the dollar to be threatened. The dollar retains many important structural advantages, benefitting from America’s geopolitical power, economic size, rule of law (comparatively speaking), and large, liquid financial and government bond markets, as well as an incumbency advantage and weak competitors. Against the backdrop of less predictable U.S. fiscal, trade and financial sanctions policies under the Trump administration, further international currency diversification by official investors and an increasing shift into non-dollar assets by private investors is possible, even likely. The political attacks on the Fed will at the margin also support such a shift without it however leading to a broader meaningful diminution of the dollar’s status as the dominant international currency.
Non-legal factors also limit likelihood of wholesale assault on Fed independence
Significant legal, political and economic obstacles make it unlikely that the Fed will see a diminution of its monetary policy independence under the Trump administration. Legally, the Supreme Court is unlikely to grant the president the authority to dismiss governors at will. Dismissing governors “for cause” would run into opposition from courts. Even if successful, the Senate would then need to confirm the presidential nominees but would balk at confirming individuals seen as too politically beholden to the president and weakening the de facto independence of the Fed. And even if several of the presidents’ preferred nominees were to be confirmed, it is far from clear that they would do the president’s bidding. Majority decision-making would further limit the influence of political loyalists on the Board and especially the FOMC. Barring a major reversal of the courts, the legal-institutional obstacles that stand in the way of President Trump gaining meaningful control or influence over Fed monetary policy are very significant.
Economically and financially, a major assault on the Fed’s independence would lead to extreme financial market volatility and weaken the economic outlook, thus sharply reducing the administration’s incentives for such a move. Politically, the incentive to make a major attempt to weaken Fed independence is also limited because it is unlikely to succeed and because it would deprive the Trump administration of a convenient scapegoat if the U.S. economy were to weaken.
[1] In addition to monetary policy, the Federal Reserve is responsible for financial stability, supervision and regulation, and the payments system.
[2] Financial Times, Supreme Court signals it could shield Federal Reserve from Donald Trump, May 23, 2025. For a “contrarian” view, Lev Menand, The Supreme Court’s Fed carveout, Columbia Public Law Research Paper forthcoming, May 27, 2025
[3] For a contrarian view, Financial Times, How to kill the Fed’s independence, February 25, 2025
[4] Federal Reserve, Statement on Longer-Run Goals and Monetary Policy Strategy, adopted effective January 24, 2012; as amended effective August 27, 2020
[5] Federal Reserve, Implementing monetary in an ‘ample-reserves’ regime, FEDS Notes, 2020
[6] A temporary appointment by the president to fill a vacant position when the Senate is in recess. Such an appointment expires at the end of the Senate’s next session. The Senate can block recess appoints by holding pro forma sessions.
[7] It remains unclear if the nomination of Trump loyalist Stephen to replace Kugler requires Senate confirmation or via recess appointment. As he will only serve out Kugler’s term till January 2026, the Senate may (or may not) be more receptive to the nomination if Senate confirmation is required.