Trump Advisors Battle for Sway on Taxes, Fed Policies

“Let us be very specific here: unless a message is coming directly from President Trump or an authorized member of his campaign team, no aspect of future presidential staffing or policy announcements should be deemed official,” campaign managers, Susie Wiles and Chris LaCivita said in a written statement to the media this winter.

Monetary Policy Battle

Whether and how to rein in the Federal Reserve’s power is one of the most divisive issues among Republicans. During Trump’s first term in the White House, he often tried to pressure the Fed and Chair Jerome Powell to keep interest rates low.

It’s an open question whether Trump in a second term would select Fed officials and other White House aides that would want to keep the central bank independent, said Nathan Sheets, the global chief economist at Citigroup Inc.

“Any kind of policy that eroded independence in an appreciable way would be greeted by the markets very vigorously and adversely and would be a source of great pressure and volatility,” he said.

“I think it would be such a problem that any gains a political actor might think that they would glean from undercutting Fed independence would be so small compared to the potential costs that they might have,” according to Sheets.

Trump isn’t the first president to try to exert influence over the Fed by advocating for rate cuts and more dovish policies.

Richard Nixon famously called for rate cuts, which made inflation roar back to life in the 1970s. In a 1984 White House meeting between President Ronald Reagan, White House chief of staff James Baker III and then Fed Chair Paul Volcker, Baker pressured the central bank chief not to raise interest rates before the election.

Trump repeatedly criticized the Fed and Powell in 2018, when the central bank was still raising interest rates, and into 2019, even threatening to fire Powell. The Fed started cutting rates in the summer of 2019.

Fed Independence

“We act like, ‘Oh my god, this could never happen.’ But it’s not like it hasn’t been attempted or succeeded in the past. It’s just that it was always being done through subterfuge because no one would have the gall to just come out and do it. But gall is not an issue for Trump,” said Stephen Myrow, a managing partner at Beacon Policy Advisers and a former George W. Bush Treasury official.

A few outside Trump advisors have discussed ways to give the president the power to oust Powell before his term ends in 2026.

Given the Fed’s independence as an institution, Trump cannot fire or replace Powell and instantly change monetary policy. All decisions made by the Federal Reserve require approval by the Board of Governors, so even one or two potential Trump nominees could be outvoted.

“The executive branch has already taken over monetary policy. Janet Yellen has used Treasury policy to usurp monetary policy and ease financial conditions. Her actions are one reason rate hikes have been ineffective,” Bessent, a Trump donor, said in an interview, refuting the notion Trump is seeking a major change.

“President Trump and his economic team understand that the one thing that anchors medium and long-term rates is the Fed’s credibility,” he added.

(Credit: Bloomberg)