Hi, everyone. In addition to mocking the affordability crisis—and the excessive number of dolls and pencils Americans apparently own—Donald Trump is laying the groundwork to make the cost of living worse. A lot worse. How? By seizing control of the Federal Reserve and pumping more money into the economy whether or not the economy needs it. This week’s edition of Receipts digs into why Fed independence is important, the overt and subtle ways Trump is trying to undermine it, and what that all means for the prices you pay. If you have thoughts on other ways Trump is sabotaging our economic institutions that you think I should pay attention to, please drop me a line in the comments. In the meantime, please consider subscribing to Bulwark+. Your support gives us the resources to track under-the-radar stories like this. Sign up today and your first 30 days will be free: –Catherine The Sleeper Issue That Could Destroy the EconomyTrump may have stopped threatening Jerome Powell—but he’s still got designs to control the Fed.
THERE ARE MANY ITEMS on President Trump’s agenda that are hurting the U.S. economy: the pointless trade wars, the socialization of the private sector, the mass deportations, and much more. But in the long run, the most damaging policy of all might be one that’s gotten scant attention, at least from non-finance-nerds: Trump’s quest to crush the Federal Reserve. If Trump succeeds, he may doom the United States to high inflation for years, if not decades, to come. Bullying the Fed has long been one of Trump’s favorite pastimes. Way back in 2019, he called Jerome Powell, the Fed chair whom he had appointed the year before, an “enemy.” He’s continued the broadsides during his second term, repeatedly musing about firing Powell—including earlier this year. It got press coverage at the time, due to the resulting market wobbles—and a truly awkward visit Trump made to the Fed headquarters as some sort of intimidation tactic. But the firing never came. And when the threats stopped, most of the media moved on. They shouldn’t have. The threats to Fed independence have continued, and got darker this week. We may now be at an inflection point, as the Trump administration tacitly threatens to purge not Powell but other officials who set interest-rate policy. If he’s successful, Trump could seize direct control of the money supply and turn America into Venezuela. LET’S START WITH THE BASICS. Why does the central bank need to be politically independent in the first place? The answer has to do with political incentives. If politicians control interest rates—and therefore the supply of money sloshing around the economy—they will always have an incentive to reduce them. That’s because doing so would stimulate the economy. If borrowing is cheap, that helps consumers and businesses feel richer, which encourages them to spend more. This creates a sugar rush, which in the near term can feel good. Especially if you’re the sitting president. In the long run, though, overstimulating the economy can be dangerous. It fuels inflation. And the medicine necessary to cure that high inflation (higher interest rates) is painful. Voters hate it. So politicians are reluctant to administer it, which can lead to more and more price growth. That’s why you want the people in charge of setting interest rates to be insulated from near-term political pressures. If they’re focused on the long-term health of the economy, rather than the next election, they’ll be more willing to play bad cop and “take the punch bowl away” before the collective party gets out of hand. There’s a lot of empirical evidence bearing this out. Countries with more independent central banks tend to have much better (i.e., lower) inflation outcomes. Likewise, there are plenty of examples of countries where politicians seized control of the money supply and decided to keep that delicious punch flowing. Venezuela, Argentina, Turkey, and pre-Euro Italy come to mind. But you don’t need to venture very far geographically for a cautionary tale. This same thing happened right here in the United States, when, in turn, Lyndon Johnson and Richard Nixon each leaned on the Fed to keep interest rates low. You may recall the painful stagflation that resulted in the 1970s. But if you’re too young, ask your parents about it.¹ Powell certainly remembers it. At a public event in Texas last year, a week after the 2024 election, I interviewed Powell and asked some awkward questions about Fed independence. One of my questions was whether we learned anything from prior episodes in which the Fed was seen as less independent. Here was his response:
To his point, a recent working paper by a University of Maryland economist quantified how much political pressure various presidents placed on their Fed chairs based on daily records of their interactions and how long they lasted. The paper found that if a current president increased political pressure on the Fed by half as much as Nixon did, even for just six months, it would raise the U.S. price level by 7 percent over the next decade. In other words: If Trump (or some other future president) took a page out of Nixon’s playbook,² we should all expect to be paying a lot more on everyday purchases. But at last year’s event, Powell assured the audience that lawmakers today knew all about this risk, and would have the Fed’s back:
He should not have been so confident. IN HIS FIRST TERM, Trump threatened to put a few nutjobs on the Fed, but ultimately lawmakers in his own party stopped him. So maybe that’s what Powell was thinking of when making those comments last year. Even so, Trump has continued to harass Powell since returning to office. The president has given the Fed chair cutesy nicknames and accused him without evidence of mismanaging the Fed headquarters construction project. Trump has mostly stopped threatening to fire him, at least. Which makes sense: Powell’s term as Fed chair ends in May 2026 anyway, so why bother? Firing him without cause would also be unlikely to survive a court challenge. (More on this in a minute.) Meanwhile, Trump has been hunting for a successor for Powell who would be more pliable, and more interested in cutting interest rates. In fact, when asked this week if cutting rates was his “litmus test” for the next Fed chair, without hesitation Trump declared, “Yes.”³ The widely reported favorite to be Trump’s nominee to replace Powell is Kevin Hassett. You may know Hassett as the affable, sycophantic director of Trump’s National Economic Council, whom JVL once described as “Conservatism’s Invincible Ignoramus.” Econ-watchers generally know him for his egregious chart crimes, the most infamous being his “cubic model.” That chart predicted, in May 2020, that COVID-19 deaths would drop to zero within two weeks. (He had misused a basic Excel function.) That embarrassing incident sums up Hassett pretty well: He’s a guy who relies on the trappings of academia to reverse-engineer whatever result Trump wants, but the entire exercise is usually garbage. That reputation, in turn, explains why bond investors recently warned Treasury Secretary Scott Bessent that they didn’t want Hassett helming the Fed. According to the Financial Times, investors worry he won’t be independent. That’s likely to be an issue with whomever Trump chooses for the top job, though. And not just for the top job, either. The Fed chair is just one position on a rotating committee that sets interest rates; Trump would need a majority of that committee under his thumb to get the easy-money policies he wants. So he has simultaneously pursued other avenues for reshaping the central bank. For example, Trump appointed the chair of the Council of Economic Advisers, Steve Miran, to an open Fed Board slot this fall. To be clear, lots of former CEA members have gone on to serve on the Fed. What’s unusual here, though, is that Miran assumed the Fed job without resigning from his political White House job. Instead, he went on “unpaid leave” from the White House while still being employed there. So there’s not even a pretense of independence, and yet Senate Republicans still pushed Miran’s confirmation through. Trump has also weaponized the state against other Fed officials. He attempted to fire Fed governor Lisa Cook in August, for instance, after claiming that she had committed mortgage fraud.⁴ She has denied the allegations, and she continues to serve as her case works its way through the courts. Separately, the Trump administration claims it doesn’t need to cite a “cause” (whether mortgage fraud, or any other misbehavior) when removing independent agency leaders. This would overturn a 90-year-old precedent regarding independent agencies. This week the Supreme Court heard oral argument for a case challenging Trump’s decision to fire a member of the Federal Trade Commission, which certainly seemed like a test case for firing Fed officials, too. In fact, Justice Brett Kavanaugh expressed concern about how the Court could rule in Trump’s favor on the FTC firing without also compromising Fed independence (which he seemed loath to do). Finally, there’s the sneakiest thing, which has gone almost entirely under the radar: the plot to undermine the regional Fed bank presidents. The Fed has an unusual governance structure. The rotating committee that votes on interest rates draws from twelve regional Fed bank presidents from around the country. These regional Fed presidents are chosen by local business leaders and other stakeholders, but must be approved by the Fed board in Washington, D.C. Usually this approval is pro forma. I have been unable to find a single case where the Fed Board vetoed a regional pick. (Tell me if I’ve missed one.) But all twelve regional bank presidents are coming up for renewal in February, and Hassett and Bessent have both coyly hinted that a purge may be coming. The pretext would be a new, bogus, long-term residency requirement that Bessent proposed, which would require Fed presidents to have lived in their bank’s region for at least three years before taking the job. If this rule were already in place today, nearly all of the Fed presidents would have been disqualified from their appointments. (These are big jobs, and usually involve a national talent search.) Hassett echoed this idea during an exchange on Fox Business last Friday:
This would be the way Trump co-opts the Fed. And we all would pay the price for it—quite literally. Ramparts— According to a new court filing, the Trump administration has a six-page list of banned words and phrases that Head Start locations are forbidden from using when describing their programs. Among the censored terms: “disability,” “race,” “women,” “trauma,” and “Gulf of Mexico.” You can find the full list here. Note that these bans have real consequences: For example, a Head Start program operated by a tribe on a Native American reservation was told not to prioritize tribal kids, in likely violation of the Head Start Act. The program director also can’t do training on trauma-informed instruction, or to support kids with autism, according to the court filing. — Days after Trump was awarded the totally-real-and-not-made-up FIFA peace prize, his DOJ moved to drop charges in a FIFA corruption case. — John Deere has warned that Trump’s tariffs are backfiring on American farmers, per the Financial Times. The tractor manufacturer has had to cut production (“building half as many tractors this year as we did two years ago”) and workers, and says it is likely to cut more jobs in 2026. — Paramount’s commitment to Rush Hour 4 may be paying off! Well, that and Jared Kushner’s involvement. Trump appears to be openly helping Paramount’s hostile takeover bid for Warner Bros. Discovery. 1 This was followed by Paul Volcker’s controversial, painfully high rate hikes, which caused a sharp recession but ultimately got inflation under control and helped the Fed win back its credibility. 2 At Fed Chair Arthur Burns’s swearing-in ceremony in January 1970, Nixon joked, “I respect his independence. However I hope that independently he will conclude that my views are the ones that should be followed.” 3 To be clear: Reasonable people can disagree about the right path for interest rates going forward. That’s because the economy is weakening (which suggests we need lower rates, to stimulate the economy) while inflation is still high (which suggests you need higher interest rates, to slam on the brakes). Trump’s theory of the case is confusing, though. If the economy is actually as red-hot as Trump claims, that would suggest we need higher interest rates. Which he definitely doesn’t want. 4 Cook is one of several officials the administration has tried to oust or harass with allegations of mortgage fraud. Others include New York Attorney General Letitia James, Sen. Adam Schiff, and Rep. Eric Swalwell. ProPublica recently dug upfinancial records showing Trump himself allegedly did exactly what he’s accused these others of doing. Earlier today, a federal grand jury refused to indict James on these charges—the third time that’s happened. You’re a free subscriber to The Bulwark—the largest pro-democracy news and analysis bundle on Substack. For unfettered access to all our newsletters and to access ad-free and member-only shows, become a paying subscriber.We’re going to send you a lot of content—newsletters and alerts for shows so you can read and watch on your schedule. Don’t care for so much email? You can update your personal email preferences as often as you like. To update the list of newsletter or alerts you received from The Bulwark, click here. Having trouble with something related to your account? Check out our constantly-updated FAQ, which likely has an answer for you.
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