George Alogoskoufis

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The independence of central banks is a cornerstone of price stability, providing a buffer between political pressures and the technical management of monetary policy. In the United States, the Federal Reserve (Fed) stands as a symbol of this principle. However, its autonomy has been significantly tested during the administrations of President Donald Trump, especially in his contentious relationship with Federal Reserve Chair Jerome Powell.

The Federal Reserve and Its Role

The Federal Reserve, established in 1913, serves as the central bank of the United States. Its primary functions include managing inflation, regulating employment levels, stabilizing the financial system, and moderating long-term interest rates. The Fed achieves these goals through monetary policy tools such as setting the federal funds rate, open market operations, and reserve requirements. Importantly, the Federal Reserve operates independently of direct political control, with governors appointed to 14-year terms and the chair serving a renewable four-year term. This structure was designed to insulate monetary policy from short-term political influences and ensure long-term economic stability.

Jerome Powell was appointed as Federal Reserve Chair by President Trump in 2018, succeeding Janet Yellen. Powell, a former investment banker and Fed governor, was seen initially as a pragmatic and centrist choice. However, their relationship soured quickly as Powell began raising interest rates to stave off inflation and normalize monetary policy following years of post-crisis accommodation.

Trump’s dissatisfaction with Powell became evident in 2018 and 2019, as the Fed increased interest rates several times despite low inflation and steady economic growth. Trump publicly criticized Powell, breaking long-standing norms of presidential restraint regarding the Fed.

The conflict reached its peak in 2019, when Trump pushed for aggressive interest rate cuts, arguing that the Fed was holding back economic growth and disadvantaging the U.S. relative to countries with negative interest rates. Powell, while eventually cutting rates, emphasized the Fed’s independence and adherence to economic data rather than political demands.

On 17 April 2025, President Trump intensified his criticism of Powell, expressing a desire for his removal over disagreements on interest rate policy. Trump, who initially appointed Powell in 2017, has become increasingly vocal about Powell’s refusal to cut rates, claiming he can fire him swiftly. However, the legality of removing a Fed Chair is uncertain. The Federal Reserve Act allows dismissal “for cause,” interpretively limited to misconduct or incapacity—not policy disputes. Historically, no Fed chair has been removed by a President. Powell, whose tenure extends to 2026, insists on the Fed’s independence, stating policy decisions are made solely for Americans’ benefit and not influenced by politics. This confrontation comes as the Supreme Court considers a case on the limits of presidential powers over independent agencies, potentially affecting the Fed’s autonomy.

Economically, removing Powell could destabilize markets and erode confidence in U.S. institutions. Meanwhile, Trump’s tariff policies are contributing to inflation, complicating the Fed’s mandate. One hopes that Powell will remain steadfast, and not contribute to the erosion of the central bank’s credibility and independence.

Implications for Central Bank Independence

The Trump-Powell clash raises serious concerns about the erosion of central bank independence. While the president has the authority to appoint Fed governors and the chair, once appointed, these officials are meant to operate without political interference. Trump’s pressure on Powell threatens to erase the lines between independent monetary policy and political influence.

If the Fed were to yield to political pressure, it could undermine investor confidence, destabilize markets, and lead to policy decisions driven by election cycles and the whims of Presidents rather than economic fundamentals. Central bank independence is strongly correlated with lower inflation and greater financial stability.

The Trump-Powell conflict is not an isolated incident but part of a broader global trend in which populist leaders challenge independent institutions. In countries like Turkey, India, and Hungary, central bank independence has been undermined by authoritarian-leaning governments, often with detrimental economic consequences. The U.S. confrontation thus serves as a cautionary tale for democracies worldwide.

Central bank independence is not merely a technical issue—it is a pillar of stable governance and economic prosperity. The Trump-Powell saga is a stark reminder that safeguarding this independence requires vigilance, institutional resilience, and public support, particularly in a time of rising populism and political division.