Trump is coming for the Fed. What can stop him.

About the authors: Ross Levine is a senior fellow at the Hoover Institution and co-author of Guardians of Finance: Making Regulators Work for Us. Amit Seru is a senior fellow at the Hoover Institution and the Steven and Roberta Denning professor of finance at the Stanford Graduate School of Business.

President Donald Trump is once again challenging the foundations of U.S. institutions—this time, by seeking sweeping authority over the Federal Reserve, which sets interest rates and supervises the country’s largest banks and other systemically important institutions.

Trump has attacked Fed Chair Jerome Powell in social-media posts over the past few days and demanded Powell lower interest rates. The administration is also pursuing legal challenges that could give Trump the power to fire the Fed chair without showing cause. If the Supreme Court sides with the administration, the president could gain day-to-day control over both monetary policy and the regulation of much of the financial system.

The economic stakes are immense.

Independent central banks are a cornerstone of modern macroeconomic management. When the Fed can set interest rates without political interference, it can prioritize long-term goals like low inflation, stable employment, and sustainable growth. Politicians, by contrast, tend to favor short-term stimulus—especially before elections. Decades of research by economists and international institutions like the International Monetary Fund show that political meddling in monetary policy leads to more volatile inflation and weaker long-term growth.

History offers a clear warning. In the early 1970s, President Richard Nixon pressured Fed Chair Arthur Burns to keep rates low in the run-up to Nixon’s re-election. Burns complied. The short-term boost helped Nixon politically, but it helped unleash double-digit inflation. Fed Chair Paul Volcker later had to crush the cycle of rising prices by raising interest rates high enough to unleash a brutal recession. That painful measure restored the Fed’s credibility and set the stage for decades of stable economic growth.

Volcker’s successors—Alan Greenspan, Ben Bernanke, Janet Yellen, and Jerome Powell—all benefited from the Fed’s institutional independence. That independence enabled Bernanke to act decisively during the 2008 financial crisis and Powell to respond rapidly during the early stages of the Covid-19 pandemic. These moments were politically risky but economically essential.

The Fed’s credibility matters for more than just domestic policy—it underpins the global standing of the U.S. dollar. Investors treat dollar-denominated assets as safe because they believe the U.S. government adheres to long-term, rules-based principles. Undermining the Fed’s autonomy would weaken that trust. Investors could demand higher yields or shift toward other currencies and assets. The U.S. would pay the price in higher borrowing costs and reduced global influence.

There are already worrying signs that investors may be losing confidence in the U.S. The dollar fell to a three-year low Monday after Trump again demanded Powell lower interest rates. Yields on long-term government debt are rising.

Emerging markets such as Turkey and Argentina offer cautionary tales. Central banks that succumb to political interference often lose credibility, fueling inflation, capital flight, and prolonged economic instability.

The Fed’s structure is designed to resist such pressure. It is a hybrid institution. Its Board of Governors is appointed by the president and confirmed by the Senate. But its monetary policy arm, the Federal Open Market Committee, includes presidents of 12 regional Federal Reserve Banks, who are chosen by local boards, not the White House. These regional representatives vote on interest-rate decisions on a rotating basis and help insulate the system from partisan swings.

Still, the Fed is far from perfect. It misjudged the inflationary pressures following the pandemic and has made its share of policy mistakes. But that is an argument for revision, not politicization.

Congress and the president should clarify the Fed’s monetary mandate. The Fed currently has what it calls a “dual mandate" to uphold price stability and full employment. Congress could simplify the Fed’s mission by giving it a single, more easily monitored inflation target. This would let the public and elected officials assess the Fed’s performance without injecting short-term political incentives into daily decision-making.

Monetary policy grabs headlines, but financial regulation is just as critical, and arguably even more vulnerable to abuse. The Fed oversees institutions holding about $150 trillion in assets. Giving the president unchecked authority over the agencies that license, examine, and sanction these firms opens the door to politicized credit allocation. The White House could pressure regulators to steer lending toward favored sectors or allies, distort investment decisions, or even nudge stock prices.

Unlike monetary policy, financial regulation is hard to monitor. Its rules are complex, its implementation opaque, and Congress’s guidance often vague. As a result, the Fed operates with vast discretion—without clear public accountability. But handing that discretion to a single elected official—especially one with short-term political goals and little real accountability—isn’t the answer.

Fixing this requires two key reforms. First, Congress must clarify the Fed’s regulatory objectives so its actions can be assessed against measurable benchmarks. Second, the Fed must become more transparent about how it supervises the financial system. These changes would improve accountability without inviting politicization. Clear goals and transparency would let voters, Congress, and the president assess whether the Fed is fulfilling its mandate—and act accordingly.

The administration is arguing in court that to fulfill the president’s constitutional duty to “take care that the laws be faithfully executed," the White House must have the power to fire the heads of independent agencies. The legal challenges don’t explicitly name the Fed, but the risks are clear. The Court’s 2020 decision in Seila Law weakened removal protections for leaders of the Consumer Financial Protection Bureau. Trump’s legal team is now asking the Court to go further. It is challenging the 1935 precedent Humphrey’s Executor, which blocks presidents from firing leaders of independent agencies without cause. If the Court overturns it, the president could potentially remove the Fed chair over policy disagreements.

Congress should act first. It can reaffirm the Fed’s independence by clarifying the “for cause" removal standard, making explicit that policy differences don’t constitute cause. It should also reinforce the structural barriers that insulate monetary and regulatory policy from partisan influence.

The Fed has flaws. But it has helped steward the world’s most dynamic economy. Surrendering its independence to politics would be a historic mistake—one markets, and history, won’t easily forgive.

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