- - - The next Fed chair's dilemma: Maintain Fed independence while pleasing Trump

Jennifer SchonbergerJuly 17, 2025 at 11:17 AM

It is becoming clear what the major challenge will be for Jerome Powell's successor: maintaining the Fed's independence while keeping President Trump happy.

Even if the president doesn't remove Powell before his term is up in 10 months, Trump has made it clear that he wants the next Fed boss to do what he wants: bring interest rates down.

"I'm only interested in low-interest people," he said Wednesday, denying reports that he intended to fire Powell yet leaving the door open to doing so for "fraud."

The various candidates Trump is considering, including National Economic Council Director Kevin Hassett, former Fed governor Kevin Warsh, Fed governor Christopher Waller, and Treasury Secretary Scott Bessent, have all expressed support for lower rates.

Trump "is putting somebody in place who he says he expects to cut interest rates very aggressively," StoneX senior adviser Jon Hilsenrath told Yahoo Finance. "Whoever becomes the next Fed chair is going to have some implicit promise to live up to.”

Media reports this week suggested that Hassett is now rising as a leading candidate. He benefits from being close to Trump, having worked for the president during both of his terms, but whether Wall Street will view that as a shot to central bank independence remains an open question.

Kevin Hassett, director of the National Economic Council and a candidate to replace Jerome Powell as Fed chair. (Andrew Caballero-Reynolds/AFP via Getty Images) (ANDREW CABALLERO-REYNOLDS via Getty Images)

"Kevin has the qualifications to get the Fed job because he is close to the president," Hilsenrath added. "In terms of doing the Fed job well, I think it will be a real challenge."

Hassett told NBC Wednesday evening that "everybody at the White House understands the independence of the Fed is super important." When central banks lose their independence, Hassett said, "it's bad for the economy and bad for markets."

Hassett did agree that rates should be lower than where they are right now, matching the easing cycles of other central banks around the world. He added that the fact that rates have not been lowered raises a "legitimate concern that independence of the Fed is not being respected by Fed members themselves."

Another candidate for Powell's job, Warsh, told CNBC on Thursday that "history tells us that the independent operations in the conduct of monetary policy is essential."

"But that doesn't mean the Fed is independent in everything else it does," he added, arguing that the Fed's reluctance to cut rates "is actually quite a mark against them."

Read more: What experts say about the possibility of additional rate cuts

'Fed independence is a myth'

US history is full of examples where US presidents challenged Fed chairs, including a confrontation between President Lyndon Johnson and former Fed Chair Bill Martin in the 1960s.

President Richard Nixon also leaned on former Fed Chair Arthur Burns to bring rates down before the 1972 presidential election. Nixon's White House even leaked false stories about Burns seeking a pay raise as way of undermining his authority.

"What's currently unfolding before our eyes has been happening for decades behind closed doors," JPMorgan Chase's Ilan Benhamou wrote in a note Thursday that cited the Johnson-Martin clash.

"What's happening for everyone to see is definitely damaging for the institution, but let's be honest, the Fed independence is a myth," Benhamou added.

The pressure on Powell is not due to let up. Trump and other White House officials are continuing to raise questions about Powell's handling of a $2.5 billion renovation of the Fed's headquarters.

White House budget director Russ Vought kept that pressure going Thursday, telling reporters that "the Fed has been mismanaged for a number of years" and that Powell's request for the Fed inspector general to examine costs involved in the project is "not enough."

Read more: How much control does the president have over the Fed and interest rates?

In 2017, President Trump looks on as his nominee for the chairman of the Federal Reserve, Jerome Powell, takes to the podium during a press event in the Rose Garden at the White House. (Drew Angerer/Getty Images) (Drew Angerer via Getty Images)

"We want to have a sit down with those that are in charge of the project and get a brief from them and see where we're at," Vought said.

However, he denied that the administration's push for an investigation is a pretext for firing Powell.

"We want to know why the project has been so expensive," he added. "It has implications for the country's fiscal situation."

Some Republicans have said they support Powell's firing, but others in the party that now controls Washington are starting to warn that any removal of Powell would deal a blow to Fed independence.

"If anybody thinks it would be a good idea for the Fed to become another agency in the government subject to the president, they’re making a huge mistake," GOP North Carolina Sen. Thom Tillis said Wednesday.

Majority Leader John Thune of South Dakota added on Fox News Wednesday night, "I think the markets want an independent Federal Reserve. I think they want a central bank that isn't subject to the whims of politics."

Even Democratic Sen. Elizabeth Warren, a past critic of Powell, said Wednesday that "markets will tank" if Trump fires Powell.

"When his initial attempts to bully Powell failed, Trump and Republicans in Congress suddenly decided to look into how much the Fed is spending on building renovations," she added. "Independence does not mean impunity and I have long pushed for more transparency and accountability at the Fed. But give me a break."

Correction: A previous version of this article misspelled the name of former Federal Reserve Chair Arthur Burns. We regret the error.

Click here for in-depth analysis of the latest stock market news and events moving stock prices

Read the latest financial and business news from Yahoo Finance

Original Article on Source

Source: “AOL Money”