United States President Donald Trump has signalled that he is close to announcing his pick for the next chair of the US Federal Reserve, setting the stage for a high-stakes confrontation between the White House and the central bank at a time of renewed inflation and mounting public anxiety over the cost of living.
In an interview with The Wall Street Journal, Trump said a decision on the next Fed chair was imminent, intensifying speculation in financial markets over the future direction of US monetary policy. With inflation again showing signs of acceleration and affordability emerging as a dominant political issue, the choice is expected to have far-reaching consequences for consumers, investors, and the global economy.
The Federal Reserve, traditionally insulated from day-to-day political pressures, has increasingly become a battleground as Trump seeks to extend presidential influence over interest rate decisions. Economists and historians warn that such interference risks repeating one of the most painful episodes in modern US economic history: the stagflation crisis of the 1970s.
Trump’s relationship with the Fed has long been turbulent, particularly with its current chair, Jerome Powell. Ironically, Powell was first appointed to the role by Trump himself in 2018. However, the relationship quickly deteriorated as Trump repeatedly accused Powell of keeping interest rates too high and slowing economic growth.
Over the years, Trump has publicly berated Powell in unusually personal terms for a US president. Just last month, Trump called Powell a “clown” with “some real mental problems,” adding bluntly, “I’d love to fire his ass.” Such remarks have underscored the depth of the rift between the president and the central bank chief.
Despite his anger, Trump has been unable to remove Powell from office. Existing legal protections mean a Fed chair cannot be dismissed “without cause,” which the US Supreme Court has interpreted narrowly to include corruption or serious misconduct. As no such grounds exist, Trump has been forced to wait until the end of Powell’s second term to install a successor of his choosing.
In the meantime, the administration has tested the limits of Fed independence in other ways. Trump has sought to remove Lisa Cook, one of the seven governors of the Federal Reserve Board, by encouraging the Justice Department to investigate allegations of mortgage fraud against her. Those claims, however, appear to be baseless, and Cook continues to serve in her role, reinforcing concerns that legal pressure is being used as a political tool.
At the heart of Trump’s dispute with the Federal Reserve lies a fundamental disagreement over who should influence monetary policy. Trump has repeatedly argued that, as president, he should be consulted on interest rate decisions, particularly during periods of economic stress.
With Americans facing a deepening affordability crisis driven by high prices for housing, food, and energy, Trump has increasingly found himself under political pressure. While inflation has complex causes, presidents often bear the public’s frustration when living costs rise. For Trump, cutting interest rates is seen as a way to stimulate growth, boost spending, and provide immediate economic relief.
Accordingly, Trump has made it clear that the next Fed chair must be someone prepared to cut interest rates quickly and significantly, and to listen closely to the president’s views on monetary policy. This stance represents a sharp departure from the post-war consensus that central banks must remain independent to manage inflation effectively.
Lower interest rates can indeed provide a short-term boost to economic activity by encouraging borrowing and spending. However, economists warn that artificially suppressing rates for political reasons tends to fuel inflation over time, ultimately worsening cost-of-living pressures rather than easing them.
For this reason, most developed economies have established central banks that operate independently of elected governments. Central bank independence is designed to ensure that short-term political considerations—such as elections, approval ratings, or partisan agendas—do not override long-term economic stability.
The dangers of presidential interference in monetary policy are not merely theoretical. In 1970, amid rising inflation and economic uncertainty, President Richard Nixon appointed economist Arthur Burns as chairman of the Federal Reserve. Burns was a trusted adviser and personal friend of Nixon, and his appointment was widely seen as politically motivated.
Like Trump, Nixon demanded that the Fed reduce interest rates to support economic growth ahead of an election. At Burns’ swearing-in ceremony, Nixon made his expectations unmistakably clear. He announced that he would meet regularly with the new Fed chair and joked, “That is a standing vote of appreciation in advance for lower interest rates and more money.”
Nixon added pointedly, “I respect his independence. However, I hope that independently he will conclude that my views are the ones that should be followed.” The remark captured the inherent contradiction in Nixon’s approach: professed respect for independence combined with intense political pressure.
Behind the scenes, Nixon went further, threatening to push legislation through Congress to weaken the Fed’s autonomy if Burns did not comply. Under sustained pressure, Burns repeatedly cut interest rates, even as inflationary pressures were building.
The consequences were severe. Prematurely low interest rates, combined with the perception that monetary policy was being dictated by the White House, fueled inflation expectations and undermined confidence in the central bank. The US economy slid into stagflation—a toxic combination of high inflation and rising unemployment that defied conventional economic remedies.
During Burns’ tenure, annual inflation peaked at around 11 per cent, while unemployment climbed to 8.5 per cent. The crisis marked one of the most painful economic periods in US history and eroded living standards for millions of Americans.
The “Great Inflation” of the 1970s was eventually brought to an end by Burns’ successor, Paul Volcker, who became Fed chair in 1979. Recognising that inflation had become deeply entrenched in public expectations, Volcker took dramatic action.
In 1980, the Federal Reserve pushed interest rates as high as 19 per cent, triggering what became known as the “Volcker shock.” The strategy was brutally effective in curbing inflation, but it came at a steep cost. Borrowing costs soared, businesses collapsed, and unemployment surged, plunging the US into a deep recession.
Volcker kept interest rates in double digits for years until inflation was decisively broken. While his actions restored the Fed’s credibility and laid the foundation for decades of price stability, the social and economic pain of the adjustment left a lasting scar.
The experience stands as a stark warning against the short-term political temptation to cut interest rates in the face of inflationary pressure.
As Trump prepares to name the next Fed chair, prediction markets and media reports point to two leading contenders. The frontrunner is Kevin Hassett, an economist whom Trump appointed last year as director of the National Economic Council.
Hassett has long argued that US interest rates should be much lower and has been a vocal critic of tight monetary policy. Having served in both Trump administrations, he is widely seen as loyal to the president and likely to align closely with Trump’s economic priorities.
Another contender is Kevin Warsh, a former Federal Reserve governor and bank executive. Warsh earned a reputation as an inflation hawk during his time at the Fed in the aftermath of the Global Financial Crisis. Initially viewed as a more independent-minded choice, Warsh appears to have reassured Trump in a recent interview that he shares the president’s goals. Trump has since said Warsh is now “at the top of the list.”
Regardless of who Trump ultimately appoints, the central question remains whether the next chair of the Federal Reserve will be able—or willing—to pursue an independent monetary policy free from political interference.
As Trump continues to concentrate power within the executive branch, the Federal Reserve stands as one of the last major institutions designed to operate at arm’s length from the White House. Its independence is widely seen as essential to maintaining economic stability, not just in the United States but across the global financial system.
With some economists warning that early signs of stagflation may be re-emerging, the stakes could hardly be higher. The painful lessons of the 1970s serve as a powerful reminder of what can happen when central bank independence is compromised.
For financial markets, consumers, and governments around the world, the unfolding struggle between the White House and the Federal Reserve has become a political drama with very real economic consequences—one in which they remain unwilling participants.
