\n<\/p>\n
I<\/span>n the bowels of the US Federal Reserve this summer, two of the world\u2019s most powerful men, sporting glistening white hard hats, stood before reporters looking like students forced to work together on a group project.<\/p>\n Allies of Donald Trump had spent weeks trying to manufacture a scandal around ongoing renovations of the central bank\u2019s Washington headquarters and its costs. Now here was the US president, on a rare visit, examining the project for himself.<\/p>\n \u201cIt looks like it\u2019s about $3.1bn. It went up a little bit \u2013 or a lot,\u201d Trump said, as Jerome Powell, the typically calm Fed chair, vigorously shook his head. \u201cSo the $2.7bn is now $3.1bn\u2013\u201d<\/p>\n \u201cI\u2019m not aware of that, Mr President,\u201d Powell quickly interjected, as Trump pulled out a paper from his suit pocket as evidence. \u201cI haven\u2019t heard that from anybody at the Fed.\u201d<\/p>\n The remarkable public encounter in late July was described as a \u201ctussle\u201d, \u201cspar\u201d and \u201cfeud\u201d by news outlets and came to symbolize an extraordinary battle for control of the world\u2019s largest economy.<\/p>\n Never before has a president been so publicly, and relentlessly, critical of the country\u2019s top monetary policymaker. For decades, successive administrations have allowed the Fed, as the institution tasked with steering the US economy, to function independently, without political interference. No longer.<\/p>\n Trump, who later embarked upon a vast construction of his own, with the surprise demolition of the entire East Wing of the White House for a new ballroom, continues to threaten legal action over the Fed renovations, and direct seemingly unlimited anger toward Powell.<\/p>\n Few believe this historic test of the central bank\u2019s independence has run its course. In fact, it is widely expected to intensify in the coming months.<\/p>\n \u201cThe institution was built to withstand a moment like this,\u201d said Claudia Sahm, a former Fed economist. \u201cSome of the battle lines were drawn, but we haven\u2019t seen this play all the way out.\u201d<\/p>\n The US economy has had a rollercoaster year. Trump\u2019s widespread tariffs and crackdown on immigration destabilized prices and the labor market \u2013 the two domains the Fed aims to protect, and balance, by setting interest rates. Higher interest rates can calm inflation, but also risk raising unemployment. Lowering rates can stimulate economic growth, but risk higher prices.<\/p>\n At the beginning of the year, it looked like the Fed had achieved a so-called \u201csoft landing\u201d: inflation had fallen significantly from the 40-year high it scaled in 2022, during the feverish post-pandemic economy, but the labor market had remained broadly stable. Interest rates went from near zero to 5.25% to 5.5%.<\/p>\n Wall Street was nevertheless anxious for rates to come down. On the campaign trail, Trump had made clear that he would want a say over how things are run at the Fed, and repeatedly suggested that he would pressure the central bank to lower rates.<\/p>\n \u201cI feel the president should at least have say in there. I feel that strongly,\u201d he said in August 2024. \u201cIn my case, I made a lot of money, I was very successful, and I think I have a better instinct than, in my cases, people that would be on the Federal Reserve, or the chairman.\u201d<\/p>\n Interest rates in the US<\/p>\n Once he retook office, Trump\u2019s laser focus on lowering rates only intensified. When his \u201cLiberation Day\u201d tariff announcement in April caused stock markets to plummet, he raged against the Fed for not acting quick enough.<\/p>\n \u201cIf I want him out, he\u2019ll be out of there real fast, believe me,\u201d Trump said of Powell in mid-April. Markets did not respond kindly to the threat, and Trump eventually said that Powell\u2019s job was safe.<\/p>\n It was the beginning, however, of what would be a long summer of presidential attacks against the Fed. Trump continued to blast \u201cToo Late Powell\u201d on social media, and attempted to draw the central bank\u2019s renovations into the spotlight.<\/p>\n Once it was clear those strategies weren\u2019t working, the White House changed course. In August, when Trump announced he would fire Lisa Cook, a Biden-appointed Fed governor and member of the rate-setting federal open market committee.<\/p>\n Bill Pulte, a close ally of Trump and head of the Federal Housing Finance Agency, which regulates mortgages, alleged that Cook had committed mortgage fraud. She had purportedly listed two homes as her primary residence, which could get her a better mortgage rate.<\/p>\n Cook, whose term ends in 2038, has since sued the White House to keep her role. The case will ultimately be determined next year by the supreme court, which temporarily blocked Cook\u2019s firing. Her lawyers are arguing the president needs demonstrated \u201ccause\u201d to fire a Fed governor, and that the fraud allegations come from \u201ccherrypicking\u201d facts.<\/p>\n While the highly anticipated decision on Trump\u2019s bid to fire Cook will have sweeping consequences for his campaign to exert great control over the Fed, he is also preparing to pick Powell\u2019s replacement as Fed chair.<\/p>\n Earlier this year, the supreme court mentioned the Fed in a separate ruling in which it allowed Trump to fire two members of independent labor boards. In its decision, the court said: \u201cThe Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.\u201d<\/p>\n The suggestion that the court views the Fed differently compared to other federal agencies provides some hope to allies of Cook, and proponents of central banking independence, but it\u2019s still unclear how the justices will ultimately rule.<\/p>\n The White House is \u201ctesting the defense\u201d, Sahm said. \u201cSome have held up, and some may not. It\u2019s a pressure campaign.\u201d<\/p>\n But the Fed has so far remained stoic in face of the White House\u2019s assaults, and Wall Street still appears confident in the Fed\u2019s policymaking \u2013 essential for the stability of markets.<\/p>\n \u201cThe Fed is always a political lightning rod. When things go wrong, the Fed is the first to blame. They get a lot of criticism when things aren\u2019t going right, and they don\u2019t get a lot of praise when things are going well,\u201d said Ryan Sweet, chief economist at Oxford Economics.<\/p>\n But Trump\u2019s attacks have largely \u201cfallen on deaf ears\u201d, added Sweet. \u201cI don\u2019t think it had any influence on what they did this year with regards to monetary policy.\u201d<\/p>\n In the fall, the Fed started to lower rates, but Powell made it clear that the move was taken out of caution for risks in the labor market. \u201cThere is no risk-free path\u201d for the central bank, Powell said in both his October and December press conferences.<\/p>\n Rates are now sitting at a range of 3.5% to 3.75%, almost 2% lower than two years ago. While the White House has softened against the Fed in recent months, tension could pick up in the new year.<\/p>\n Trump said that he wants to see interest rates go down to 1%, but new projections from Fed officials suggest that most of the 12 voting members in the rate-setting committee don\u2019t expect much change to rates in the next year.<\/p>\n \u201cWe\u2019ve now gotten to a place where the risks of [inflation and unemployment] are what we think are broadly, roughly, in balance,\u201d Powell said in December.<\/p>\n Still adamant to lower rates, Trump has instead focused on picking a new chair to replace Powell, whose term as chair is up at the end of May 2026. In recent weeks, he appears to have narrowed his focus on \u201cTwo Kevins\u201d: Kevin Warsh, a former Fed governor who Trump says \u201cthinks you have to lower rates\u201d, and Kevin Hassett, current director of the National Economic Council and a staunch Trump loyalist.<\/p>\n Trump said that the next Fed chair should listen to the president. \u201cTypically, that\u2019s not done any more,\u201d he told the Wall Street Journal. \u201cI don\u2019t think he should do exactly what we say, but certainly we\u2019re \u2013 I\u2019m a smart voice and should be listened to.\u2019<\/p>\n Economists are mixed on the impact a new Trump-appointed Fed chair can have on overall decision making. The chair is just one vote among 12 on rates, but a Fed chair is also the face of the Fed. Though other officials speak publicly, and frequently espouse their views on the economy, the chair has the biggest microphone, and sets the tone.<\/p>\n \u201cIf there are any cracks in the Fed\u2019s independence, it will spread very, very quickly,\u201d Sweet said. \u201cThat\u2019s going to really affect market and inflation expectations \u2026 So it\u2019s actually counter to what the White House wants.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":" In the bowels of the US Federal Reserve this summer, two of the world\u2019s most powerful men, sporting glistening white hard hats, stood before reporters looking like students forced to work together on a group project. Allies of Donald Trump had spent weeks trying to manufacture a scandal around ongoing renovations of the central bank\u2019s<\/p>\n","protected":false},"author":1,"featured_media":39764,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[3189,1532,3932,97,21510,4437,319,517,71,3199],"class_list":{"0":"post-39763","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-bank","9":"tag-bid","10":"tag-central","11":"tag-control","12":"tag-exert","13":"tag-fed","14":"tag-federal","15":"tag-reserve","16":"tag-trumps","17":"tag-unprecedented"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/39763","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=39763"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/39763\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/39764"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=39763"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=39763"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=39763"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\u2018The president should at least have a say\u2019<\/strong><\/h2>\n
\u2018Too Late Powell\u2019<\/strong><\/h2>\n
\u2018No risk-free path\u2019<\/strong><\/h2>\n
Could tension pick up in the new year?<\/strong><\/h2>\n