Reshaping the Federal Reserve: Trump's Ambitious Plan for Central Bank Control

As former President Donald Trump gears up for a potential 2024 comeback, he and his allies have floated a range of ideas that could fundamentally alter the relationship between the White House and the Federal Reserve. From the notion of a "shadow" Fed chair to sweeping institutional changes outlined in the conservative Heritage Foundation's "Project 2025," the former president's vision for the central bank is coming into focus.

Seizing the Monetary Steering Wheel: Trump's Assault on Fed Independence

Undermining the Fed's Independence

The former president and his allies have explored various avenues to compromise the Federal Reserve's independence, should Trump return to the Oval Office. This includes the possibility of firing Chairman Jerome Powell and asserting the president's "say" in setting interest rates. While Trump has since downplayed the notion of directly dismissing Powell, a range of other options remain on the table.One such idea, floated by Trump's top economic adviser Scott Bessent, is the concept of a "shadow" Fed chair. This would essentially make Powell a lame duck long before his term ends in 2026, with the new "shadow" chair wielding significant influence. Trump has also promised not to nominate Powell for a third term, further signaling his intent to reshape the central bank's leadership.

Institutional Overhaul: "Project 2025" and the Assault on the Fed's Powers

The conservative Heritage Foundation's "Project 2025" blueprint outlines a series of proposals aimed at curtailing the Federal Reserve's powers. These range from abolishing the central bank's "dual mandate" to focus solely on inflation, to limiting its ability to influence commercial banks' capital requirements.The project also takes aim at the Fed's policy of "quantitative easing," proposing a winding down of the central bank's balance sheet and restrictions on future purchases. The most radical idea, though perhaps the least politically realistic, is to replace the Federal Reserve with a more diffuse "free banking" system, overlooking the historical context that led to the central bank's creation.

Asserting Control over the Federal Bureaucracy

A third area where a potential second Trump administration could clash with the Federal Reserve is the former president's priority of asserting greater control over the federal bureaucracy and independent government agencies. This effort, which Trump has promised will involve a "top-to-bottom overhaul of the federal bureaucracies," could potentially include the Fed and other entities that currently operate at arm's length from the White House.Trump and his allies have long critiqued the protections that thousands of government employees have enjoyed from changing political winds. Their proposed reforms, which could balloon the number of political appointments from around 4,000 to more than 50,000, could significantly erode the independence of agencies like the Federal Reserve.

A Divisive Issue in the 2024 Campaign

The issue of the Federal Reserve's independence has emerged as a clear dividing line in the 2024 presidential campaign. While Trump and his allies have floated ideas that could fundamentally alter the central bank's relationship with the White House, Democratic nominee Vice President Kamala Harris has stated that she disagrees with Trump's approach and would never interfere in the Fed's decisions.The Biden White House has also emphasized the importance of an independent central bank, underscoring the stark contrast between the two parties' visions for the future of the Federal Reserve. As the 2024 race heats up, the battle over the central bank's autonomy is poised to be a key battleground in the ongoing struggle for the direction of the nation's economic policy.