The Struggle Between the White House and the Federal Reserve; What Price Will the Central Bank Pay?
Recently, there has been intense confrontation in American politics, with Trump publicly demanding that Federal Reserve Chairman Powell immediately lower interest rates to offset the impact of tariffs, threatening to "replace him at any time."
Chicago Fed President Evans warned during an interview with CBS on April 20 that such political pressure is jeopardizing the independence of the Federal Reserve and could lead to serious consequences.
The core of this controversy lies in the design of the U.S. central banking system.
According to the Federal Reserve Act, the president has the authority to nominate the Federal Reserve chairman but does not have the power to interfere with specific monetary policy decisions.
This institutional separation mechanism is intended to prevent short-term political interests from hijacking economic decisions, and over 90% of central banks worldwide use a similar independent model. Trump's threat essentially touches on the core taboo of the modern financial system.
This is not the first time Trump has applied pressure. Since Powell took office in February 2018, Trump has issued over 60 tweets criticizing the Federal Reserve, notably calling it "crazy" during the market turmoil in December 2018.
However, the peculiarity of this situation lies in the fact that the government’s tariff policy against China is itself creating economic uncertainty; therefore, asking for a rate cut amounts to asking the central bank to pay for the side effects of its policy.
The current stance of the Federal Reserve reflects the tug-of-war between professional judgment and political pressure.
On April 16, Powell clearly stated that, in the face of the complex situation arising from tariff policies, decisions will be based on economic indicators such as inflation and employment, rather than political pressure.
The essence of this game is the defense of institutional boundaries. Since its establishment in 1913, the Federal Reserve has undergone 14 major economic shocks, including the Great Depression and the oil crisis, and its independence has always been the cornerstone of market stability.
