Introduction
President Donald Trump has repeatedly expressed his dissatisfaction with the Federal Reserve’s (Fed) independence over the past few months. He has aimed to remove Fed Chair Jerome Powell from his position due to disagreements over monetary policy management. Recently, Trump also attempted to dismiss Lisa Cook, a member of the Fed’s Board of Governors, citing alleged false information in a mortgage application. However, Cook disputes the accusation and has taken legal action to challenge her removal.
Trump’s Actions and the Fed’s Independence
Trump’s intentions have raised questions about the Federal Reserve’s autonomy. Unlike Mexico, where central bank independence is constitutionally defined, the Fed’s independence stems from a 1951 memorandum between the Treasury and the Fed. Recently, economists Richardson and Wilcox published an article in the Journal of Economic Perspectives (Volume 3, 2025) titled “How Congress Designed the Federal Reserve to be Independent of Presidential Control.” The article provides a historical review that challenges the common belief that the 1951 memorandum is the sole source of independence between the Fed and the government.
Historical Context of Fed Independence
In 1935, a new Banking Act was debated, with Marriner Eccles, the Fed’s chairman at the time, advocating for direct presidential control over monetary policy. Although the House of Representatives approved the bill in this manner, the Senate rejected the idea of direct government interference in monetary policy after intense debate. The full Congress voted against Eccles’ proposal, resulting in the 1935 Banking Act that established operational and executive separation between the Fed and the government. Despite this, Eccles remained at the helm of the Fed until 1948.
Interestingly, the 1951 memorandum that marked the separation between the Fed and the government was championed by Eccles, who served on the Board from 1948 to 1951 after his 1935 defeat. However, the true architect of the Fed’s independence was Congress in 1935, contrary to the popular belief that Eccles single-handedly secured it.
Trump’s Attempts to Alter Fed Independence
Advisors close to Trump have suggested that amending the 1951 memorandum would suffice to diminish the Fed’s independence in favor of the executive branch. However, since the 1935 Banking Act forms the legal basis for independence, only a congressional law or a Supreme Court ruling could transfer monetary policy power from the Fed to the presidency. Thus, altering the Fed’s independence is not a straightforward process.
Key Questions and Answers
- What is the basis of the Federal Reserve’s independence? The 1935 Banking Act, not the 1951 memorandum, forms the legal foundation for the Federal Reserve’s independence from government control.
- How has Trump attempted to influence the Fed? Trump has sought to remove Fed Chair Jerome Powell and Board member Lisa Cook due to disagreements over monetary policy.
- What is the historical context of the Fed’s independence? The 1935 Banking Act established the operational and executive separation between the Fed and the government, with Congress rejecting direct presidential control over monetary policy.
- Can Trump easily alter the Fed’s independence? No, as the 1935 Banking Act serves as the legal basis for independence. Only a congressional law or Supreme Court ruling could transfer monetary policy power from the Fed to the presidency.
