During his first term, the now president-elect has been critical of the Federal Reserve and its leader for their reluctance to cut rates. A recent report by The Wall Street Journal revealed a proposal by Trump allies to diminish the Fed's independence, a key aspect highly valued by economists and investors. The plan includes subjecting Fed regulations to White House scrutiny and utilizing the Treasury Department to oversee the central bank more assertively. Additionally, there is a suggestion to replace the current Fed chair with a Trump loyalist once his term concludes in 2026.
However, implementing such changes would require congressional approval to amend the Federal Reserve Act, the legislation that established the Fed in 1913. Despite the Republican majority in the Senate and the potential control of the House, there seems to be little enthusiasm among Republicans for a significant overhaul of the Fed.
If a Trump loyalist were to assume the role of Fed chair, they might encounter resistance from other Fed officials if their decisions lack empirical support and appear to be politically motivated. According to William English, a former senior Fed adviser, the Fed is likely to prioritize what it deems as the most appropriate course of action, even if the chair attempts to adjust monetary policy based on short-term political considerations.
