Trump, Republicans may not be unified on how to change the Fed

President-elect Donald Trump and Republican Party critics of the Federal Reserve may not be aligned on what they see as key priorities for reforming the central bank. Trump has previously said that he wants more influence over its practices, but lawmakers may want the opposite, according to a report from Politico.

“The president-elect’s chief issue with the Fed seems to be that he wants more influence over its decisions,” the report states. “He wants interest rates at low levels — and wants to be able to push the Fed in that direction. That’s roughly the opposite of what many GOP lawmakers seem to have in mind.”

Traditionally, the president has had limited influence over Fed policy. Framers of the central bank expressed early beliefs that it should be sheltered from political influence as much as possible in order to focus solely on economic trends and data to drive decisions.

Republican lawmakers who expressed their perspectives to the outlet signal that they want more predictability in Fed policy, tying decisions more closely to formulas used to compute interest rates.

“But the most prominent of those formulas, known as the Taylor rule (named for Stanford economist John Taylor), would have consistently led to higher rates over the past 15 years,” Politico explained. “That’s the opposite of what Trump has in mind. [T]he incoming president isn’t pushing for more predictability — he just wants to have more say.”

Trump has spoken about this desire multiple times, both in his first term as president and on the 2024 campaign trail.

“I feel the president should have at least a say in there, yeah,” Trump said during a press conference this past summer. “I feel that strongly. I think that, in my case, I made a lot of money, I was very successful, and I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman.”

But giving the president more control of the Fed has the potential to be a “lose-lose” for lawmakers, Politico explained.

“Not only would it limit the Fed’s leeway to make decisions without worrying about electoral outcomes or short-term political factors — a key pillar of stability for financial markets — but also, the president-elect’s influence would yield policy they don’t like,” the report read.

Former Sen. Pat Toomey (R), who spent years as a leader on the influential Senate Banking Committee, said the consequences of such a shift would become quickly apparent.

“Trump made it very clear he wants cheap, easy money,” Toomey told Politico. “Everyone in Congress is painfully aware of how disastrous that very policy can be. We just lived through the worst inflation in 40 years because of that policy.”

It’s unclear how the debate will take shape in the early days of the new Congress and presidential term. Congress will be seated in early January, with Trump set to be inaugurated on Jan. 20. The term of incumbent Fed Chair Jerome Powell will expire in mid-2026, at which time Trump can name his successor.

Trump is free to select a candidate who sees the relationship between the Fed and the White House in similar terms. But lawmakers who spoke with Politico signaled that “Republicans still don’t want to fundamentally undermine the central bank’s autonomy,” the report stated. “That is to say: The GOP firewall around Fed independence is holding.”