Why Trump’s attacks on the Fed’s independence are so dangerous
Steven Greenhouse
The reason most central banks worldwide have independence is that lawmakers realized long ago that if presidents or prime ministers control central banks, they will often cut interest rates too aggressively to goose economic growth short-term and lift their popularity. But a few years hence, that often leaves the nation, and their successors, with painfully high inflation.
Trump apparently holds the misbegotten notion that if he takes control of the Fed and its interest rates, then only good things will happen. He’s convinced that this would not only reduce the interest rates that consumers pay on mortgages, but would save the federal government ([url]https://www.wsj.com/economy/central-banking/fed-reserve-rate-cut-national-debt-interest-157d3ff1[/url]) huge sums by reducing the interest rates paid on the bonds that finance the nation’s colossal $37.5tn debt.
But central bankers and economists warn that Trump-orchestrated rate cuts could backfire big time. In a New York Times opinion piece, Ben Bernanke and Janet Yellen, ([url]https://www.nytimes.com/2025/07/21/opinion/federal-reserve-independence-trump.html[/url]) former Federal Reserve chairs, wrote: “A particularly clear lesson of history is that when central banks are forced to finance government deficits – by keeping interest rates excessively low, to cite one possibility – the result is inevitably higher inflation and economic damage.”
In other words, if Trump muscles his way into controlling the Fed and slashing its rates, financial markets might worry that Trump’s power play will further push up inflation (beyond the inflation his tariffs are already causing). Core inflation is running at 3.1%, well above the Fed’s target of 2.0%. That’s a big reason Powell opposes steep rate cuts (notwithstanding the Fed’s quarter-percent rate cut on Tuesday ([url]https://www.cnn.com/business/live-news/federal-reserve-interest-rate-09-17-25[/url])). As any non-Trumpian economist will tell you, the higher inflation resulting from Trump-induced rate cuts is likely to cause interest rates to rise on mortgages, auto loans and the bonds that finance the nation’s $37.5tn debt. What’s more, that higher inflation could rattle stock markets and cause the dollar to sink against other currencies.
Never an assiduous student of history, Trump probably doesn’t realize that some not-too-distant episodes of political interference in Fed policy didn’t end well. After the second world war, Harry Truman’s treasury department pressured the Fed to hold down interest rates to make it easier to finance the war debt. That helped fuel double-digit inflation in the late 1940s.
Richard Nixon pressed Arthur Burns, then Federal Reserve chair, to hold down interest rates to help Nixon win re-election 1972. By doing Nixon’s bidding, Burns helped fuel a burst of late 70s inflation that caused his successor as Fed chair, Paul Volcker, to jack up interest rates to 20% to tame inflation. Those 20% rates threw the US into a deep recession. “Once Fed credibility is lost it can be costly to regain, as the depth of the Volcker recession demonstrated,” Bernanke and Yellen wrote.
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Steven Greenhouse
The reason most central banks worldwide have independence is that lawmakers realized long ago that if presidents or prime ministers control central banks, they will often cut interest rates too aggressively to goose economic growth short-term and lift their popularity. But a few years hence, that often leaves the nation, and their successors, with painfully high inflation.
Trump apparently holds the misbegotten notion that if he takes control of the Fed and its interest rates, then only good things will happen. He’s convinced that this would not only reduce the interest rates that consumers pay on mortgages, but would save the federal government ([url]https://www.wsj.com/economy/central-banking/fed-reserve-rate-cut-national-debt-interest-157d3ff1[/url]) huge sums by reducing the interest rates paid on the bonds that finance the nation’s colossal $37.5tn debt.
But central bankers and economists warn that Trump-orchestrated rate cuts could backfire big time. In a New York Times opinion piece, Ben Bernanke and Janet Yellen, ([url]https://www.nytimes.com/2025/07/21/opinion/federal-reserve-independence-trump.html[/url]) former Federal Reserve chairs, wrote: “A particularly clear lesson of history is that when central banks are forced to finance government deficits – by keeping interest rates excessively low, to cite one possibility – the result is inevitably higher inflation and economic damage.”
In other words, if Trump muscles his way into controlling the Fed and slashing its rates, financial markets might worry that Trump’s power play will further push up inflation (beyond the inflation his tariffs are already causing). Core inflation is running at 3.1%, well above the Fed’s target of 2.0%. That’s a big reason Powell opposes steep rate cuts (notwithstanding the Fed’s quarter-percent rate cut on Tuesday ([url]https://www.cnn.com/business/live-news/federal-reserve-interest-rate-09-17-25[/url])). As any non-Trumpian economist will tell you, the higher inflation resulting from Trump-induced rate cuts is likely to cause interest rates to rise on mortgages, auto loans and the bonds that finance the nation’s $37.5tn debt. What’s more, that higher inflation could rattle stock markets and cause the dollar to sink against other currencies.
Never an assiduous student of history, Trump probably doesn’t realize that some not-too-distant episodes of political interference in Fed policy didn’t end well. After the second world war, Harry Truman’s treasury department pressured the Fed to hold down interest rates to make it easier to finance the war debt. That helped fuel double-digit inflation in the late 1940s.
Richard Nixon pressed Arthur Burns, then Federal Reserve chair, to hold down interest rates to help Nixon win re-election 1972. By doing Nixon’s bidding, Burns helped fuel a burst of late 70s inflation that caused his successor as Fed chair, Paul Volcker, to jack up interest rates to 20% to tame inflation. Those 20% rates threw the US into a deep recession. “Once Fed credibility is lost it can be costly to regain, as the depth of the Volcker recession demonstrated,” Bernanke and Yellen wrote.
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