The Ongoing Political Battle Over the Federal Bank's Independence
Santiago Bel
September 22, 2025
Independence from government influence remains at the core of a stable economy's success. The Federal Reserve, often called the "Fed," was made to run without political interference. The central bank's position is to manage inflation in a country smoothly and monitor economic performances as well. The yearning for more and more capital has caught the attention of governments globally, and in the end, the responsibility of capital is left up to officials. The disagreements between presidents and the Federal Reserve officials have grown stronger during the Trump years and continue today. There has been a heated discussion of whether the United States' central bank should be run by data or solely due to politics.
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Since its 1913 creation, U.S. monetary policy has been entrusted to the Federal Reserve, a necessity to escape the fleeting swing of election-driven demands of the U.S. public. The election approach to controlling interest rates could lead officials to boost the economy artificially, aside from triggering inflation years later. Experts should be the ones to control credit. During the 40 years from 1947 to 1987, the framework was very useful to the US economy, along with helping it to grow steadily. The relationship between checked administrative authority and irresponsible government officials has always been tenuous.
Donald Trump chose Jerome Powell as the chairman of the Federal Reserve in 2018; he anticipated that he could rely on Powell to keep interest rates low as a spur to economic growth. During that period, President Trump went against Federal Reserve Chairman Jerome Powell, fueled by concerns over an unemployment rate of three percent, despite not a single job loss. The President argued that the Fed "were crazies or lunatics" yet he also went behind his back and questioned his capacity to eliminate or downrank the chair of the Fed, which was something no president had ever done, requiring tremendous power that he cannot even use. These experts actually felt that if it happened, it could cause chaos in the markets with people misplacing their faith. The event is considered one of the greatest confrontations in American financial history.
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Fast-forward to last month, and the controversy deepened. President Trump made the decision to dismiss Federal Reserve Governor Lisa Cook from the Board of Governors, unfortunately for her. This decision was of great offense to the American people as Lisa Cook holds great importance to the nation due to her service. She broke barriers by being the first Black woman to hold such a prestigious position. This ruling sparked a great amount of controversy among the American people as he decided to scrap her position nonetheless. This devastating move also made her quite annoyed, and rightfully so, as she finds herself to be a victim of the system. Usually, it's the men who head these corporations. According to an article written in The New York Times, "The dismissals of Ms. Cook's predecessor, the Vice Chairman, Jerome H. Powell, and Governor Michelle W. Bowman will be a topic of discussion with members of the Federal Reserve's Board of Governors as early as this week, Treasury officials said on Friday." It is said that the American people are caught up in a "paradox of politics" in cases like this. Americans responsibly elect officials while being the victim of political maneuvers such as Obama's partisanship in the appointment. The White House officially stated that Gary Gensler engaged in mortgage-related misconduct, with no relevant evidence presented regarding the claim." Critics argued that the firing was politically motivated. After being appointed by President Biden, Cook proposed to be slow and cautious with interest rate cuts until the inflation rates decreased. Trump also wanted a faster rate to spur short-term growth. When Cook resisted, she was abruptly removed.
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The fallout was immediate. Many people have questioned whether a president has enough authority to simply fire a governor, even without a good reason. According to U.S. law, governors should not be removed from office without good reason, as this would violate their due process rights. Firing Marshall for her political beliefs may have violated the General Counsel provision in the D.C. Circuit Court. Investors are becoming increasingly worried that bank creditor restrictions are limiting bank supervisors' authority and independence.
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The larger issue extends beyond one firing. The tension between President Trump and Fed Chairman Jerome Powell, compounded by the replacement of Powell's second-in-command, reveals how the president believes the Fed can be controlled for his own purposes. Elections by voters should grant U.S. Presidents the power to sway monetary policy. However, they do not want to give so much power to people who are not elected to do jobs, as it affects growth and jobs. Opponents of the plan express concern that when political influence breaches the Fed, political decisions become the focal point, and evidence-based evidence gets ignored.
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History offers warnings. President Richard Nixon used pressure to keep interest rates down during the 1970s, effectively helping him win his re-election. Rapid expansion of the economy at a "breakneck" speed led to serious long-term, hard-hitting consequences. Political intervention has led to economic problems in countries that have experienced it.
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The discrimination of President Trump against Lisa Cook within the National Bureau of Economic Research crosses barriers that America's democracy has tried hard to break free from, opening major issues with America's justice system because it crosses boundaries. If a president has the authority to get rid of a Fed governor simply due to policy disagreements, then the Federal Reserve becomes a political branch and the president. Traits of such money are that it may provide instant gains to an economy but, in the long run, it destabilizes and inflates its markets, creating a volatile situation in the economy.
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The preservation of the Federal Reserve's independence affects everyone, whether they are the source or the recipient of credit. Because an independent Federal Reserve can make decisions, regardless of whether those decisions may be disliked but required, the economy is protected; not just over a short period of time, but the protection span is extended over time. As a result of being driven by politics, the Fed system may have to favor short-run quick success over lasting stability.
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The longstanding tension between Trump, Powell, and Cook serves as a reminder of the importance of safeguarding institutions from political influences that could jeopardize economic stability. History shows that limiting the Fed's autonomy would result in approval in the short-term years but may ultimately damage the trust needed for a readily functioning economy.