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In the bowels of the US Federal Reserve this summer, two of the world’s most powerful men, sporting glistening white hard hats, stood before reporters looking like students forced to work together on a group project.
Allies of Donald Trump had spent weeks trying to manufacture a scandal around ongoing renovations of the central bank’s Washington headquarters and its costs. Now here was the US president, on a rare visit, examining the project for himself.
“It looks like it’s about $3.1bn. It went up a little bit – or a lot,” Trump said, as Jerome Powell, the typically calm Fed chair, vigorously shook his head. “So the $2.7bn is now $3.1bn–”
“I’m not aware of that, Mr President,” Powell quickly interjected, as Trump pulled out a paper from his suit pocket as evidence. “I haven’t heard that from anybody at the Fed.”
The remarkable public encounter in late July was described as a “tussle”, “spar” and “feud” by news outlets and came to symbolize an extraordinary battle for control of the world’s largest economy.
Never before has a president been so publicly, and relentlessly, critical of the country’s top monetary policymaker. For decades, successive administrations have allowed the Fed, as the institution tasked with steering the US economy, to function independently, without political interference. No longer.
Trump, who later embarked upon a vast construction of his own, with the surprise demolition of the entire East Wing of the White House for a new ballroom, continues to threaten legal action over the Fed renovations, and direct seemingly unlimited anger toward Powell.
Few believe this historic test of the central bank’s independence has run its course. In fact, it is widely expected to intensify in the coming months.
“The institution was built to withstand a moment like this,” said Claudia Sahm, a former Fed economist. “Some of the battle lines were drawn, but we haven’t seen this play all the way out.”
‘The president should at least have a say’
The US economy has had a rollercoaster year. Trump’s widespread tariffs and crackdown on immigration destabilized prices and the labor market – the two domains the Fed aims to protect, and balance, by setting interest rates. Higher interest rates can calm inflation, but also risk raising unemployment. Lowering rates can stimulate economic growth, but risk higher prices.
At the beginning of the year, it looked like the Fed had achieved a so-called “soft landing”: inflation had fallen significantly from the 40-year high it scaled in 2022, during the feverish post-pandemic economy, but the labor market had remained broadly stable. Interest rates went from near zero to 5.25% to 5.5%.
Wall Street was nevertheless anxious for rates to come down. On the campaign trail, Trump had made clear that he would want a say over how things are run at the Fed, and repeatedly suggested that he would pressure the central bank to lower rates.
“I feel the president should at least have say in there. I feel that strongly,” he said in August 2024. “In my case, I made a lot of money, I was very successful, and I think I have a better instinct than, in my cases, people that would be on the Federal Reserve, or the chairman.”
‘Too Late Powell’
Once he retook office, Trump’s laser focus on lowering rates only intensified. When his “Liberation Day” tariff announcement in April caused stock markets to plummet, he raged against the Fed for not acting quick enough.
“If I want him out, he’ll be out of there real fast, believe me,” Trump said of Powell in mid-April. Markets did not respond kindly to the threat, and Trump eventually said that Powell’s job was safe.
It was the beginning, however, of what would be a long summer of presidential attacks against the Fed. Trump continued to blast “Too Late Powell” on social media, and attempted to draw the central bank’s renovations into the spotlight.
Once it was clear those strategies weren’t working, the White House changed course. In August, when Trump announced he would fire Lisa Cook, a Biden-appointed Fed governor and member of the rate-setting federal open market committee.
Bill Pulte, a close ally of Trump and head of the Federal Housing Finance Agency, which regulates mortgages, alleged that Cook had committed mortgage fraud. She had purportedly listed two homes as her primary residence, which could get her a better mortgage rate.
Cook, whose term ends in 2038, has since sued the White House to keep her role. The case will ultimately be determined next year by the supreme court, which temporarily blocked Cook’s firing. Her lawyers are arguing the president needs demonstrated “cause” to fire a Fed governor, and that the fraud allegations come from “cherrypicking” facts.
‘No risk-free path’
While the highly anticipated decision on Trump’s bid to fire Cook will have sweeping consequences for his campaign to exert great control over the Fed, he is also preparing to pick Powell’s replacement as Fed chair.
Earlier this year, the supreme court mentioned the Fed in a separate ruling in which it allowed Trump to fire two members of independent labor boards. In its decision, the court said: “The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”
The suggestion that the court views the Fed differently compared to other federal agencies provides some hope to allies of Cook, and proponents of central banking independence, but it’s still unclear how the justices will ultimately rule.
The White House is “testing the defense”, Sahm said. “Some have held up, and some may not. It’s a pressure campaign.”
But the Fed has so far remained stoic in face of the White House’s assaults, and Wall Street still appears confident in the Fed’s policymaking – essential for the stability of markets.
“The Fed is always a political lightning rod. When things go wrong, the Fed is the first to blame. They get a lot of criticism when things aren’t going right, and they don’t get a lot of praise when things are going well,” said Ryan Sweet, chief economist at Oxford Economics.
But Trump’s attacks have largely “fallen on deaf ears”, added Sweet. “I don’t think it had any influence on what they did this year with regards to monetary policy.”
In the fall, the Fed started to lower rates, but Powell made it clear that the move was taken out of caution for risks in the labor market. “There is no risk-free path” for the central bank, Powell said in both his October and December press conferences.
Could tension pick up in the new year?
Rates are now sitting at a range of 3.5% to 3.75%, almost 2% lower than two years ago. While the White House has softened against the Fed in recent months, tension could pick up in the new year.
Trump said that he wants to see interest rates go down to 1%, but new projections from Fed officials suggest that most of the 12 voting members in the rate-setting committee don’t expect much change to rates in the next year.
“We’ve now gotten to a place where the risks of [inflation and unemployment] are what we think are broadly, roughly, in balance,” Powell said in December.
Still adamant to lower rates, Trump has instead focused on picking a new chair to replace Powell, whose term as chair is up at the end of May 2026. In recent weeks, he appears to have narrowed his focus on “Two Kevins”: Kevin Warsh, a former Fed governor who Trump says “thinks you have to lower rates”, and Kevin Hassett, current director of the National Economic Council and a staunch Trump loyalist.
Trump said that the next Fed chair should listen to the president. “Typically, that’s not done any more,” he told the Wall Street Journal. “I don’t think he should do exactly what we say, but certainly we’re – I’m a smart voice and should be listened to.’
Economists are mixed on the impact a new Trump-appointed Fed chair can have on overall decision making. The chair is just one vote among 12 on rates, but a Fed chair is also the face of the Fed. Though other officials speak publicly, and frequently espouse their views on the economy, the chair has the biggest microphone, and sets the tone.
“If there are any cracks in the Fed’s independence, it will spread very, very quickly,” Sweet said. “That’s going to really affect market and inflation expectations … So it’s actually counter to what the White House wants.”
