Trump victory poses challenges to Fed independence – Insurance News

that of Donald Trump return to White House This could strain the independence of the US Federal Reserve, potentially weakening its ability to combat inflation and unemployment without political interference.

The Fed has a dual mandate of Congress act independently to combat both inflation and unemployment – ​​primarily by raising and lowering interest rates.

Anything that undermines the Fed's independence could spook financial market traders, who might wonder whether it can effectively combat inflation.

“The prevailing view over the past 30 years, with the exception of the first Trump administration, has been that it is best to give the Fed as much latitude as possible to conduct monetary policy,” David Wilcoxprincipal researcher at Peterson Institute for International Economics (PIIE), told AFP.

“Monetary policy is already complicated enough without the need for this additional consideration,” added Wilcox, a former senior adviser to three Fed chairs and also director of U.S. economic research at Bloomberg.

– Trump’s “best instincts”? –

The Federal Reserve System includes a decentralized network of 12 regional reserve banks and a network of seven members Board of Governors In Washington.

Fed governors are appointed by the US president for staggered 14-year terms and must be confirmed by the Senate.

The Fed the president and vice presidents are appointed from among these seven governors and, once appointed, cannot be removed without cause.

The Fed Board of Governors also plays a role in approving nominations to lead the 12 regional reserve banks.

However, these appointments are made by the regional reserve banks' own directors, which adds a layer of protection against too much interference from the center.

Where a future President Trump can – and very likely will – have significant influence on the Fed in choosing its appointments.

Jerome Powell expected to step down as Fed chairman in May 2026and Trump should not reappoint him.

The president-elect is a fierce critic of Powell – whom he first appointed to head the US central bank – accusing him without any evidence of his support for the party. Democratsand once even wondered if he was a bigger enemy than the Chinese president Xi Jinping.

The president-elect also said he had “better instincts” on the economy than many Fed governors, and argued that the US president should have “at least” some say in setting rates of interest.

But once Powell leaves his post as Fed chair, he will remain governor until 2028, if he chooses to stay, complicating Trump's nomination process.

To replace him with someone not currently on the board, Trump must either pressure an existing governor to resign or replace the Fed governor. Adriana Kugler when his mandate expires in January 2026then appoint his replacement to the top position.

– “A disproportionate influence” –

Given the “inordinate influence” exercised by the president of the US central bank, the next head of the Fed appointed by Trump “could change the dynamics and independence of monetary policy”, believes the chief economist of Nationwide. Kathy Bostjancic declared to AFP.

“If someone is nominated and appointed and they are seen to have political leanings, and that allows them to influence their monetary policy decisions, then it would become quite complicated for the government. Federal Reserve” she said.

But even with Trump Republican Party regain control of Senatethe next Fed chair will likely still face intense scrutiny, Steve Englander, Standard Chartered head of North America macro strategy, told AFP.

“It's not like you can pick a name out of a hat and throw it in the Senatehe’s confirmed the next day and he votes the next day,” he said.

Senators “take their role very seriously,” he added.

A final safety net also exists in bond markets, which takes into account expectations about where the Fed's interest rates will move in the future and impacts borrowing rates on everything from mortgages to car loans.

“You can't appoint someone 180 degrees outside of the mainstream … because the bond market would reject that immediately,” Englander said.

“The bond market is a safeguard,” he added. “There is a limit.”

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