Why Trump’s war on the Fed
is monetary populism at its worst

Introduction

Since returning to office in January 2025, President Donald Trump has made the Federal Reserve a central target of his presidency. At first, there were hints of serious reform, including talk of a Fed audit with Elon Musk and even considering former Congressman Ron Paul—long a critic of the Fed as an institution and of its easy-money policy—as an advisor. Many initially saw this as a push for greater accountability by the central bank.

However, those signals quickly faded, replaced by a far more troubling agenda—one that demands lower interest rates and relentless attacks on Chair Jerome Powell for not cutting rates fast enough, openly threatening his removal, and even attempting the unprecedented step of replacing Governor Lisa Cook with a new, loyal governor.

What began as rhetoric of sound money has quickly become a push for easy-money policies that risk transforming the Fed into a political instrument of the presidency, with potentially serious consequences for the broader economy.

Monetary populism at work: Trump’s challenge to the Federal Reserve

U.S. presidents have long resented the Fed’s independence, from Lyndon Johnson’s infamous confrontation with the Fed’s Chairman William McChesney Martin in the 1960s to Richard Nixon’s behind-the-scenes pressure a decade later. But Trump’s campaign represents a more radical break: for the first time in history, an American president has asked a Federal Reserve governor to resign.

In fact, Trump’s power is limited. Fed governors can only be removed for cause, such as misconduct or malfeasance, not for policy disagreements, and any replacement requires Senate approval. On September 10, a federal judge reinforced those safeguards, temporarily blocking Trump’s attempt to oust Governor Lisa Cook—an early setback in an unprecedented legal battle over the Fed’s independence.

Yet institutional limits have not stopped Trump’s pressure campaign. Unable to dismiss Fed governors, he has turned to public attacks that undermine confidence in the institution. With public debt topping $37 trillion, unemployment reaching 4.3%—a four-year high—and the economy showing signs of strain, his obsession with low rates is politically motivated: to appease the business world, provide voters with cheaper mortgages, and reduce the cost of servicing public debt. Yet, these short-term maneuvers carry severe long-term risks.

Markets are already responding to this pressure. Investors are shifting to short-term bonds and demanding higher premiums on long-term debt. However, politicizing monetary policy threatens more than just reputations—it risks the dollar’s global standing, destabilizes markets, and could spark consequences far beyond Washington.

Having weakened trust at home, Trump’s team looks abroad for justification, holding up the European Central Bank (ECB) as a model, citing low foreign rates to claim the Fed is “behind the curve.” This comparison is misleading. Monetary policy must reflect domestic realities, not foreign benchmarks. The ECB, in particular, is hardly an example for America to follow: years of negative real interest rates, massive bond buying, and crisis-driven interventions have left Europe with sluggish growth, debt dependence, and distorted markets.

History provides further warning. When leaders politicize central banks, the consequences can be severe. Turkey’s President Recep Tayyip Erdoğan slashed rates in defiance of inflation, triggering a collapsing lira, capital flight, and economic stagnation. Argentina followed a similar path, using the central bank to finance deficits until hyperinflation reached nearly 300%. The US is stronger, the dollar more resilient, but it is not immune.

Indeed, sound monetary policy is not a matter of cross-country comparisons. Effective policy requires careful consideration of the domestic context, trade-offs, and long-term consequences.

Easy money favors the wealthy, not ordinary families

Politicians often turn to easy money because it delivers quick wins: cheaper borrowing, rising asset prices, and the illusion of growth. But like a sugar rush, the effect is temporary—and the crash is costly. Inflation increases, markets become unstable, and inequality deepens—not as a natural market outcome, but because interventionist monetary policy distorts the playing field. Asset inflation disproportionately rewards those who already hold capital, while ordinary workers face higher prices and stagnant wages.

Since 2008, artificially low rates and repeated rounds of quantitative easing have inflated stocks and real estate, enriching those with capital while leaving ordinary households squeezed by higher housing, food, and everyday costs. Empirical studies confirm this pattern: a one-point cut in interest rates boosts disposable income for top earners by 4–5%, but has a barely noticeable impact on middle- or lower-income families.

Thus, Trump’s populist promise that cheap money will help working Americans is largely illusory. From Richard Cantillon’s early insights to modern studies by Raghuram Rajan and Karen Petrou, the evidence is consistent: monetary stimulus systematically benefits the wealthy and those with early access to capital, while ordinary families bear the brunt of the inflationary fallout.

If Donald Trump were genuinely committed to reform, he would restore fiscal discipline, curb the Fed’s power to manipulate markets, limit its ability to create money out of thin air, and ensure that market forces rather than central planners determine interest rates. Instead, his focus appears more on control—seeking to bend the Fed to his will to manipulate rates for short-term political advantage.

This is not reform but the politicization of monetary policy—an approach that history shows carries serious risks, with the greatest burden falling on the very Americans he claims to champion.

This material is a result of a new collaboration between the Institute for Research in Economic and Fiscal Issues (IREF) and the European Center for Austrian Economics Foundation (ECAEF), focused on publishing a series of articles on economic and fiscal topics. It emphasizes our commitment to independent thought, academic freedom, and critical inquiry. The original was published here: https://en.irefeurope.org/publications/online-articles/article/why-trumps-war-on-the-fed-is-monetary-populism-at-its-worst/