As the Federal Reserve fights for its independence in the face of a mounting assault from Donald Trump, it’s not been getting much help — at least until this week.
The Supreme Court bailed out the US central bank by allowing Governor Lisa Cook to keep her job — for now. Trump’s bid to fire her is the highest-stakes test so far of the Fed’s autonomy. And Wednesday’s order only represents a stopgap victory: The court will return to the case in a January hearing.
If the Fed needs a last line of defence, it’s because Trump’s pressure campaign has encountered only limited pushback in Congress and financial markets. That has emboldened the president to test traditional guardrails around the Fed — widely seen as protections for the whole US economy, not just the central bank — without incurring any meaningful costs.
“There’s not been some of this political and economic blowback that I think a lot were expecting,” says Graham Steele, a fellow at Stanford Law School and a former Treasury official in the Biden administration. “If you’re a politician looking at this, and you think the long-term ends justify the means of tinkering with the Fed,” he says, “you might think that it’s worth it.”
Terms of the Federal Reserve's Board of Governors
The backdrop to Trump’s broadsides against the Fed is his campaign for drastic interest-rate cuts. Central banks that are able to withstand such pressures do a better job of keeping a lid on inflation, most analysts agree. Trump’s team says the Fed’s hesitance to go along is a drag on the economy that hurts Americans. The Fed has refrained from challenging Trump, arguing its focus is setting policy without political considerations.
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‘Under Trump’s Thumb’
As pressure intensified this year, safeguards that have restrained the president in the past haven’t kicked in.
Congress, which created the US central bank and maintains oversight, is chief among them. Republicans hold majorities in both chambers, and they’ve mostly offered tepid defences of the Fed, or in some cases backed Trump’s campaign.
It’s a reality check for Fed Chair Jerome Powell, who’s worked tirelessly to cultivate relationships with elected officials and once said he would “wear the carpets of Capitol Hill out.” For a long time, those efforts bore fruit: Powell got bipartisan backing at confirmation hearings, and criticism of him over the years has tended to be tame.
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“Things have changed in Congress and especially in the Senate,” says Steven Kamin, a senior fellow at the American Enterprise Institute and former division director at the Fed. “Republican senators are much more under Trump’s thumb than they were in the first term, and so much less willing to basically defend the Fed against Trump.”
Republicans last month fast-tracked the confirmation of Stephen Miran, head of Trump’s Council of Economic Advisers, to the Fed board. That came despite criticism from Democrats and some Fed watchers that Miran’s arrival at the central bank, without fully resigning from the CEA job, would compromise its independence. The nomination ultimately cleared the Senate along party lines.
Picking Their Battles
Congressional Republicans largely ignored the president’s jawboning of the Fed during his first term. But this time around Trump’s criticisms have sometimes been backed by GOP lawmakers like Senate Banking Committee Chair Tim Scott. In July, Scott made an issue of the Fed’s multi-billion-dollar renovation of its Washington headquarters, which Trump then seized upon.
To be sure, the Trump administration’s Fed bashing doesn’t come in a vacuum. Especially since the 2008 financial crisis, there’s been a backlash against central bankers, from the political left as well as the right. Fed officials have been criticized for stoking inequality with asset purchases, failing to see post-Covid inflation coming and overreaching into areas like climate change.
Still, most Republicans have at least refrained from joining the attacks on Powell, albeit without lending him much support publicly.
A person familiar with Hill Republicans’ thinking said Powell had helmed the Fed well, but that GOP members are choosing their battles carefully when it comes to the central bank. Lawmakers would know a situation that calls for a more vocal intervention when they see it, the person said.
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‘Last Guardian’
In the financial markets, there have been episodes during Trump’s second term when his actions or proposals made waves – and got dialled back as a result. That includes the reversal of some tariff plans.
Markets also wobbled in July amid speculation that Trump was on the verge of firing Powell. But in the face of his more recent escalation against the Fed, investors have remained sanguine.
After Trump said in an August social media post that he was firing Cook, longer-dated Treasuries and the dollar registered only modest moves. Bond markets aren’t pricing in higher inflation, the chief danger that experts see looming when central-bank independence gets eroded.
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“Markets are the last guardian of Fed independence,” says David Beckworth, senior research fellow at the Mercatus Center at George Mason University. “Either they’re on guard and what they see hasn’t troubled them, or they are guards who are asleep on the job.”
“Right now, maybe I’m Mr Optimist. I am leaning towards the first interpretation,” Beckworth says. “They see what’s happening. They just don’t see that it rises to the level of ‘time to react.’”
‘Uniquely Structured’
While markets can reserve judgment, the US court system is going to have to make a call.
Trump cites mortgage-fraud allegations against Cook, which are under investigation by the Justice Department, as cause to fire her. She hasn’t been charged with any crime and denies wrongdoing.
Lower courts sided with Cook by blocking Trump’s efforts to remove her, and the Supreme Court said on Wednesday that it won’t act right away on the government’s request for an immediate ouster. No justice publicly expressed disagreement with handling the case this way — a rare show of unity.
The Supreme Court has repeatedly backed the president’s expansion of executive power this year, including his withholding of congressionally approved funds and ouster of leading officials at other agencies. But it also signalled several months ago that it might be a line of defence for the Fed, when justices referred to the central bank as “uniquely structured” in the context of other Trump firing fights.
Yelling Won’t Work
As for the Fed itself, it’s mostly maintained a stoic posture and refused to engage with Trump. Powell has argued that the Fed can best maintain its independence and serve the public by staying out of political fights. “We don’t get into back-and-forth with external people,” he said last week. “We keep our heads down and do our jobs.”
That approach puts the central bank at a structural disadvantage against an administration not shy of firing off barbs, some Fed watchers say. Others see little alternative.
“What action can they take to stop him from doing what he’s doing? Yelling is not going to do it,” says Scott Alvarez, a former Fed general counsel. “The markets believe they’re acting independently. That’s the most important thing they can do.”
Steele, the Stanford lawyer who also spent many years as a Democratic staff member in the Senate, says the Fed could have pushed back against Trump by using its own bully pulpit or taking a clearer stand in the Cook case.
In the past, the Fed has gotten itself into trouble “when it has not been willing to adapt to broader changes in circumstances,” including in the political environment, he says. “That probably should prompt them to think about the world that they’re really operating in now.”
There’s no sign that Trump’s campaign to put his imprint on the Fed will let up.
The president has mused about having a majority on the Fed board as openings arise, and says he’ll pick a new chair committed to lower rates to replace Powell when his term ends next year. Treasury Secretary Scott Bessent, who’s overseeing that selection process, has grown more vocal in his critiques and called for an “honest, independent, nonpartisan review” of the entire institution.
Where it matters most, the Fed is still resisting all this pressure. It cut rates last month for the first time in 2025 — but by much less than Trump wants, and accompanied by signals of caution.
Ultimately, the effect of Trump’s campaign “has to be measured based on the policies the Federal Reserve follows and implements. Right now, it’s not clear there’s been any impact,” says Kamin, the AEI economist. “The bigger impacts may occur down the line.”
