Will a Trump victory spell "Boom" or "Doom" for the Fed?

In case you haven't noticed, this hasn't been a conventional election year. In fact, it's been pretty damn wild. It's still August, but we've already seen:

Lastly, we've also seen Donald Trump call for the President to have a direct say in Federal Reserve interest rate decisions.

In a world of assassination attempts and alleged couch copulation, perhaps that last point about interest rates doesn't seem so crazy. But it is! You’d have to go back to Truman or FDR to find such a public challenge to the Fed's authority (If I'm forgetting something, let me know here).

Sure, there’s always been behind-the-scenes drama, public criticism, and even outright pressure and manipulation. But what Trump is calling for is unprecedented.

In fact, when it comes to Fed independence, you might say Trump sees what can be, unburdened by what has been.

Remember: this is not financial advice. It's just the opinion of a guy getting paid to ramble on the Internet while using a pseudonym. So do your own research, and invest at your own risk. The author cannot trade on Kalshi.

One of the supposed hallmarks of the Federal Reserve is its independence.

As the St. Louis Fed puts it, “The Federal Reserve was made accountable to Congress but also was specifically designed to carry out its responsibilities without interference or control from vested interests inherent in electoral politics, fiscal policymaking, and private banking.”In other words, an independent Fed is supposed to be free to make choices for the long-term health of the economy, and not have to worry about short-term political matters.

And despite many ups and downs, most presidents have paid lip service to this idea, at least in public.

As noted interest-rate meddler Richard Nixon said of his Fed Chair Arthur Burns, "I respect his independence. However, I hope that independently he will conclude that my views are the ones that should be followed."But when it comes to Federal Reserve independence, Trump didn’t get the memo.

In early 2018, Trump’s hand-picked nominee, Jerome Powell, was appointed as Fed Chair. But their relationship quickly soured when Powell pushed the Fed to raise interest rates.

Soon after, Trump began repeatedly and publicly chastising Powell. In 2019, he referred to members of the Fed as “boneheads” and urged them to cut rates to zero despite a robust economy.

Trump even asked his lawyers about removing Powell, but was talked out of it, due in no small part to the fact that his authority to oust the Fed Chair is questionable at best.“I guess I'm stuck with you,” Trump reportedly told Powell.

Recent reports suggest Trump is again interested in removing Powell if he returns to the White House—a claim he’s publicly, if not convincingly, denied.

“I would let him serve it out… especially if I thought he was doing the right thing,” Trump said at the 2024 Republican convention.

While Trump is, for the moment, not directly attacking Powell, he’s moved on to targeting the Fed as a whole.

"I feel the president should have at least [a] say in there," Trump said during an August press conference. "I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman."

Keep in mind, Trump’s instincts were telling him to take rates to zero just before the COVID-19 pandemic (and the ensuing economic crisis) began.

For her part, Kamala Harris has staked out the opposite end of the spectrum.

Although she was one of only 13 senators to vote against Powell’s nomination in 2018, she says she would never attempt to undermine the Fed.

"The Fed is an independent entity and as president, I would never interfere in the decisions that the Fed makes," Harris recently told reporters.That said, given Harris's willingness to copy Trump's "no tax on tips" proposal, it's possible she'll change her tune, especially if the idea of chipping away at Fed independence becomes popular with the public.

Luckily for the Fed, the public is currently much more interested in the Costco exploits of A.J. and Big Justice than they are with interest rate policy.

While Trump’s rhetoric regarding Jerome Powell and the Fed may be unprecedented, it may also be unrealistic.

According to Kalshi traders, the chances of Powell leaving before 2026, when his current term ends, are around 20%.

Why?

For starters, as mentioned above, many argue the president lacks the authority to remove the Fed chairman without cause. But even if Trump tried to fire Powell, the case would likely end up in the courts, with a final ruling coming well after Powell’s term had ended.For this reason alone, Trump might forgo a protracted legal battle and just let Powell ride out his term. That said, given Trump's penchant for vindictive squabbles, that could change on a dime.

What about attempting to gain direct influence over interest rates? Such a move would also require a change in law, which—even if Trump wins—is unlikely to get through Congress.

There’s also the matter of the election. Trump must first win in November before any of this can happen. And while that's certainly possible, recent polling indicates it will be a very tight race.But the fact that traders think there’s still a one-in-five chance that Powell will be gone before 2026 is pretty remarkable in and of itself.Not as remarkable as this video from A.J. and Big Justice, but remarkable nonetheless.

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