Trump's Legacy & Fed Control: An Uphill Battle for Influence?

Trump's Legacy: Attempting Control of the Federal Reserve

President Trump's most enduring legacy from his first term might be the successful establishment of a Republican majority on the Supreme Court. It is anticipated that he will strive to replicate this achievement within the Federal Reserve during a potential second term. However, the Federal Reserve is fundamentally different from the Supreme Court. While the Supreme Court has experienced partisan polarization over decades, the Fed remains an institution that values consensus and data dependency. This is reflected in its institutional structure and its staff, including those appointed by Trump himself. Therefore any attempt to control it will face fierce resistance.

Attempt to Dismiss Governor Cook: A Necessary First Step?

This week's attempt to dismiss Governor Cook is seen as a necessary first step in Trump's binary view of the Fed: those he appointed will enact his policies, and those appointed by Biden will not. But this view has flaws. Chairman Powell himself, a Trump pick, ultimately became a target of the President's attacks for not cutting interest rates quickly enough. Similarly, while Trump appointees Waller and Bowman now support rate cuts, they only began dissenting in recent months. In 2022, when inflation soared to 9.1%, they joined the broader consensus to rapidly tighten monetary policy, and maintained that stance in subsequent years, until the Fed settled on holding rates steady before gradually easing after price pressures subsided.

The Paradox of Trump's Position

Ironically, Trump himself opposed Fed rate cuts in September 2024, accusing the Fed of acting with political motivations to aid then-Vice President Harris's campaign.

Waller: An Institutional, Non-Partisan Figure?

Waller has a long institutional track record: he served as head of research at the St. Louis Fed for a decade, not a typical position for partisan activists. According to Bloomberg, he may take over as Fed chair after Powell's term ends.

Oversensitivity to Loyalty

Trump's team now seems particularly sensitive to loyalty issues. Stephen Moore, nominated to fill the Fed board's most recent vacancy, is far from mainstream, calling for the Fed to be subordinated to the executive branch and its fiscal priorities.

Difficulty Obtaining a Majority

Even if Moore gains a seat, securing a policy-making majority depends not only on the board but also on the votes of rotating regional Fed presidents.

Complex Selection Process

Reports suggest the administration is considering a complex pressure campaign to influence these picks, but their convoluted selection process requires layers of scrutiny, not only from Washington but also from the financial industry.

An Uphill Battle

Simply put, this requires many people willing to voluntarily, or under coercion, cooperate with the Trump administration's plans. In a long war of attrition, Trump might eventually win. But quickly seizing control requires the Fed to first begin "destroying itself from within." Disclaimer: This analysis offers a perspective on potential developments in monetary policy and does not constitute investment advice. Investors should always conduct their own research before making any investment decisions.