President Donald Trump’s perceived encroachment on the independence of the US Federal Reserve has corporate executives assessing the potential pitfalls of various scenarios and how they need to respond.
Step one, for many of them, is to proclaim clear public endorsements of an independent Fed.
Leaders ranging from top executives of the nation’s largest banks to advisers within Trump’s own White House have spent the summer speaking about the need for the Fed to make decisions without facing partisan intimidation. At stake is global confidence in the ability of the world’s largest economy to manage interest rates with a rational eye towards maintaining economic growth and controlling inflation.
“I think the independence of the Fed is absolutely critical,” J.P. Morgan Chase CEO Jamie Dimon proclaimed during his company’s quarterly earnings conference call last month. “Playing around with the Fed can have adverse consequences, the absolute opposite of what you might be hoping for.”
Similar defences were echoed by Dimon’s counterparts at Bank of America and Goldman Sachs. On behalf of Carlyle Group, co-founder David Rubenstein called the Fed “the crown jewel of the governmental system” and “very merit-oriented.”
Citigroup’s CEO, Jane Fraser, argued that the independent Fed “drives credibility. It is critical to the effectiveness of our capital markets and US competitiveness.”
The threat level escalated this summer as Trump hurled insults at Fed Chairman Jerome Powell, calling him “incompetent” and a “major loser” and insisting that Powell has been “too late” to reduce rates. He briefly threatened to fire Powell before the chairman’s term expires next year, floating a rationale centred around renovation cost overruns at the Fed’s headquarters.
As the calendar turned to September, Trump moved to fire Fed governor Lisa Cook, alleging mortgage fraud although no such charges have been filed. Cook calls the attempted dismissal illegal and is seeking a court injunction to keep her job.
Trump has said there is “no inflation” in the US economy, at a time when job growth has dramatically slowed. The president therefore demands a 300-basis-point cut. Consensus among Fed watchers is that there will likely be a 25-bp reduction in September and perhaps two more before the end of 2025. Fed officials continue to be cautious, because government statistics show that consumer and producer prices are still rising at a rate higher than the Fed’s 2% target.
Past US presidents have occasionally attempted to jaw-bone the nation’s central bankers when feeling economic pressure. Trump’s recent actions are criticised as a more insidious threat to the Fed’s longstanding ability to set policy to ensure employment growth and low inflation.
Some of the most vocal corporate defenders of Fed independence also happen to be otherwise supportive of the Trump presidency. Kenneth Griffin, Chief Executive Officer of the Citadel hedge fund firm, co-wrote an opinion piece in the Wall Street Journal on 7th September warning that more Trump influence on the Fed poses a risk of higher inflation and a spike in borrowing costs.
That’s because a too-aggressive Trump would harm global investor confidence in US fiscal management. The consequences could be a rapid rise in the risk premium inherent in holding US debt, Griffin writes in the joint commentary with Anil Kashyap, a professor at Chicago Booth School of Business.
Some of the Fed defenders even serve in the current White House. Kevin Hassett, Director of Trump’s National Economic Council, on 9th September said he agrees that a lack of independence would exacerbate inflation. Treasury Secretary Scott Bessent endorses continued Fed independence, while at the same time urging the Fed governors to take precautions against entangling themselves in politics.
Others contend that any threat to Fed independence is exaggerated and not very relevant anymore, considering the recent clues that the governors now mostly favour interest rate cuts and are ready to get started.
