[Narrator] The President of the United States typically keeps the Federal Reserve at arm's length, with one recent exception. - The Fed is out of control. The Fed has gone crazy. Jerome Powell is not making it easy.

- There's nothing written down that says the Fed *should* be independent. It's not in the law. It's not in any statute. The Fed is given this, quote, unquote, "independence" because they have to make some unpopular decisions sometimes.

- [Narrator] On the campaign trail, Trump has suggested a different approach. - I don't think I *should* be allowed to order it, but I think I have the right to put in comments as to whether or not interest rates should go up or down.

- [Narrator] Here's how much influence a Trump White House could exert over the Central Bank and its ability to steer the world's largest economy. - Fed history is actually quite interesting. - [Narrator] That's Richard Clarida, who Trump appointed

in 2018 to serve as Vice Chair of the Central Bank. - The Fed is a creation of Congress and has been given a specific statutory mandate to achieve price stability and sustain maximum employment. - [Narrator] Clarida was in the room when the Fed made many

of the rate decisions that Trump criticized during his first administration. - I just did not observe, and really, if you look at historical transcripts, you really don't see evidence of Fed discussions being political. - [Narrator] That independence is key when it comes

to setting the federal funds rate, which is the rate that banks pay for overnight borrowing. When rates go down, it becomes cheaper for households to borrow and spend and for businesses to invest in hiring and equipment. There's always an incentive by lawmakers,

by presidents, to goose growth now.  There's an election to win. Let's try to get the economy to be as hot as it can. Well, if you let inflation get out of control, you need somebody who will come in and remove the punch bowl from the party

when the party's getting started. - [Narrator] During Trump's campaign, some of his allies quietly drafted proposals to revamp the Fed and the White House's ability to influence its decision-making, people familiar with the matter told "The Wall Street Journal."

Some of his advisors, particularly those from Wall Street, have told him it's a bad idea to try to interfere with the Fed. But there are other advisors around Trump who have said, "Look, the Fed shouldn't be some independent island.

They should answer to the executive branch." - [Narrator] At the time, Trump campaign officials distanced themselves from the plan, saying it didn't come directly from Trump or the campaign. The President's power to influence the Fed

really runs through the appointment process. - [Narrator] The Fed is made up of three components: the 12 Federal Reserve Banks across the US, each with their own bank presidents. Then there's the seven-member Board of Governors

in Washington, D.C., with each member appointed by the President. And then there's the Federal Open Market Committee, a 12-member voting committee made up of the governors and a rotating cast of Fed presidents. - The membership of the committee, which, by statute,

has to affirmatively vote on monetary policy, is set by statute. It does not include the President. It does not include the Treasury Secretary. The law requires decisions to be made by that constituted committee. - The main way that the President of the United States

gets to control the Fed is by designating a chair. - I have nominated Jay to be our next Federal chairman. - And filling the board with governors when the seats come open every two years. Other than that, it's very hard to influence the Fed

outside of the appointments process. - [Narrator] Trump's ability to immediately alter the Fed through appointments will be limited. In his first term, Trump managed to fill five Fed Board vacancies within his first year in office. Of the current board members, two were appointed by Trump,

but now there's only one seat set to open in the next two years. - It could be harder, unless people leave their terms early, for Donald Trump to put people on the board who will do what he wants them to do.

- [Narrator] One of Trump's most high-profile appointments will come in May 2026, when Powell's term as Fed Chair expires. - Trump will have options. He could promote an existing governor that he appointed last time, Michelle Bowman,

or Chris Waller, to make them the chair. Or he could pick somebody who isn't currently on the board. It's possible that you could have a Fed Chair that says, "I'm going to take President Trump's views into the boardroom

when setting interest rates." - The Fed Chair has one vote on that committee of 12. When you start to talk about scenarios of the Fed potentially moving policy in an undesirable direction, that would require an affirmative committee vote. - [Narrator] Trump has publicly disapproved

of Powell's performance, and at one point in 2019 likened him to Chinese President Xi Jinping. It remains unclear whether Trump has the legal authority to fire Powell. - Will you try to replace Jerome Powell? - No, I don't think so. I don't see it.

But I think if I told him to, he would, but if I asked him to, he probably wouldn't. But if I told him to, he would. - [Narrator] And Powell has made it clear he doesn't intend on leaving before 2026.

- If he asked you to leave, would you go? - [Powell] No. - [Reporter] Can you follow up on, do you think that legally, you're not required to leave? - No. - [Narrator] Trump takes office

at a delicate moment for the Fed. The Central Bank has cut rates twice this fall with an expected third coming out in mid-December. Inflation has trended closer toward, yet still above, the bank's 2% target. - At a broad level, less independent central banks

deliver inferior outcomes, and I think financial markets understand that. If inflation stalls out above the Fed's target, you could get into a situation where the Fed says, "Look, we're not going to be cutting interest rates right now,"

and Trump may not like that. There's plenty of potential for conflict to resurface between Donald Trump and the Powell Fed. Thank you very much. (energetic pensive music)

How Much Influence Can Trump Have Over Rate Cuts and the Fed? | WSJ

The Wall Street Journal takes you inside carefully selected stories and events in a visually captivating way so you can dig deeper into the news and insights that matter to you. 

The Wall Street Journal

Trump's history of criticizing the Federal Reserve's independence and interest rate decisions.

Trump has frequently criticized the Fed's actions, particularly under Jerome Powell.

He questions the Fed's independence, stating it's not legally mandated.

Trump believes he should have the right to comment on interest rate decisions.

The Federal Reserve's structure, independence, and Trump's potential influence.

Richard Clarida, former Fed Vice Chair, explains the Fed's mandate from Congress.

The importance of the Fed's independence in setting interest rates is emphasized.

The inherent tension between political incentives for economic growth and the Fed's role in controlling inflation.

Reports of Trump allies drafting proposals to revamp the Fed and increase White House influence.

Trump's influence on the Fed through appointments and potential conflicts with Powell.

Explanation of the Fed's three components: Reserve Banks, Board of Governors, and FOMC.

The President's primary influence is through appointing the Fed Chair and Board members.

Limited opportunities for Trump to appoint new board members in his second term.

Discussion of potential successors to Powell as Fed Chair in 2026.

Trump's public disapproval of Powell and uncertainty about his ability to fire him.

The current economic climate and potential for future conflict between Trump and the Fed.

The Fed's recent rate cuts and the challenge of managing inflation.

Potential for conflict if the Fed resists further rate cuts despite political pressure.

How Much Influence Can Trump Have Over Rate Cuts and the Fed? | WSJ

How Much Influence Can Trump Have Over Rate Cuts and the Fed? | WSJ

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