It’s official: America is set for a presidential election rematch between former President Donald Trump and President Joe Biden. The two candidates sealed their parties’ nominations this week when they each reached the required delegate count, setting up a replay of 2020 with the roles reversed: Biden the incumbent, vying for a second term he denied Trump, who is back in his comfort zone as the challenger.
To say the two candidates have vast policy differences would be an understatement. But they do have one decision in common: Both nominated Federal Reserve Chair Jerome Powell to his post atop the central bank of the world’s largest economy.
However, their approaches to dealing with Powell illustrate not just the different policies one might expect from a Democrat and a Republican but staggeringly different beliefs each candidate has about the role of the Federal Reserve. Biden adhered to longstanding expectations that the president not interfere with the Fed’s monetary policy. In fact, Biden, along with his spokespeople, regularly went out of their way to ensure White House did not even give the appearance of doing so. Meanwhile, Trump’s more bombastic approach was to exert public pressure on Powell that, more than anything, served to demonstrate the frailty of using “political norms” to ensure the separation of powers in the U.S. Government.
Powell was first nominated to the Federal Reserve Board of Governors in 2011 by former President Barack Obama. In 2017, Trump tapped him to lead the Fed for his first four-year term. In 2021, Biden renominated Powell despite some opposition from progressive Democrats. That puts Powell in the unusual position of straddling two administrations, both of which he has had to lead through particularly turbulent economic times.
Last month, Trump toldFox Business Network’s Maria Bartiromo he would replace Powell, reprising a theme of his presidency.
‘Way off-base’
Back in 2018, Trump openly groused about Powell, saying the Fed was raising interest rates at too quick a pace and hurting the stock market. Trump’s frustrations reached a fever pitch at the end of the year with reports that he was considering firing Powell, which set off a firestorm in D.C., not least because many constitutional scholars weren’t even sure if the president had the legal authority to do so. Until then no president had publicly considered firing a Federal Reserve chair for conducting monetary policy they disagreed with, much less crowed to the press about it.
“So far, I’m not even a little bit happy with my selection of Jay,” Trump told the Washington Post in November 2018, referring to Powell by his nickname. “Not even a little bit. And I’m not blaming anybody, but I’m just telling you I think that the Fed is way off-base with what they’re doing.”
Trump once said the only problem facing the U.S. Economy was the Fed, likening it to an unskilled golfer. He even compared Powell to Chinese President Xi Jinping, asking in August 2019, “who is our bigger enemy, Jay Powell or Chairman Xi?”
As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the U.S. Will do great…
— Donald J. Trump (@realDonaldTrump) August 23, 2019
While serving under Trump, Powell rarely referred to the former president by name or explicitly addressed the political pressure. He did, however, make broad statements about the importance of the central bank’s independence.
“We’re never going to take political considerations into account or discuss them as part of our work,” Powell said in January 2019, shortly after the reports Trump was considering firing him. “We’re human. We make mistakes. But we’re not going to make mistakes of character or integrity.”
On one occasion that month when he was asked directly if he would resign if Trump asked, Powell replied: “No.”
Biden’s firewall vs Trump’s wrecking ball
Once in office, Biden distanced himself from his predecessor’s behavior. In a Wall Street Journal op-ed in 2022, previewing a rare meeting with Powell, Biden wrote: “My predecessor demeaned the Fed, and past presidents have sought to influence its decisions inappropriately during periods of elevated inflation. I won’t do this.”
The Fed’s independence from political considerations is considered critical to its mandate to manage monetary policy. Without the freedom to make often-unpopular decisions to either slow down an overheating economy or pull it out of the sort of tailspin brought on by events like the pandemic or the 2008 financial crisis, the Fed would be subject to the vicissitudes of partisan politics—with potentially disastrous results. For instance, an unscrupulous government official could engineer an economic crisis to hurt a political rival, or juice the economy in the short term to bolster their own tenure in office, while hurting its long-term health by causing it to overheat.
In his interview with Bartiromo, Trump rejected the idea of Fed independence, saying he considers the Fed “political,” specifically Powell. “I think he’s going to do something to probably help the Democrats,” Trump said.
He continued: “It looks to me like he’s trying to lower interest rates for the sake of maybe getting people elected. I don’t know.”
Against that backdrop, Biden’s commitment to the usual firewall between a presidential administration and the Fed stands in stark contrast to Trump’s openly political pressure. The president has regularly stated his intention to adhere to, not influence, the Fed. During Biden’s June meeting with Powell when inflation was peaking he expressed faith in the Fed’s ability to lower prices.
“My plan to address inflation starts with the simple proposition: Respect the Fed, respect the Fed’s independence, which I have done and will continue to do,” Biden said.
A few months later in December, when Biden made an offhand comment that a particularly strong monthly jobs report meant the economy was “in a sweet spot” and might not need further rate hikes, it was treated with surprise, although at least one other Fed official—Atlanta Federal Reserve Bank president Raphael Bostic—had publicly predicted that further interest rate increases wouldn’t be needed.
In the meantime, the usual political swirl of an election and the Federal Reserve’s continued fight against inflation could collide in the fall. The first round of rate cuts meant to loosen the economy is widely expected to start around June. With a consensus of at least three rate cuts forecasted for this year, it appears likely later ones will come when the country finds itself in the thick of election season.