USA: The Politicized Debate Over the Independence of the Federal Reserve

The discussion about the role of the Federal Reserve and its independence from the White House is heating up once again. Although the central bank is supposed to operate apolitically, political attention regarding interest rate decisions is growing, especially with an eye on the upcoming elections. Former President Donald J. Trump repeatedly promised to lower interest rates if re-elected, despite having little direct influence over them. During his tenure, he publicly criticized the Fed for its slow rate cuts, but with little success. Trump remains focused on the Fed, which may be preparing its first rate cut in over four years. He argues that current economic difficulties necessitate such a move. At the same time, he warned that rate cuts in the weeks leading up to the election could be politically motivated and more favorable to the Democrats. In contrast, Vice President Kamala Harris and President Joe Biden are largely silent on the Fed. While Biden has occasionally made cautious forecasts regarding rate cuts, he avoids direct interference with the central bank. Democrats could benefit from lower rates, as it might signal that the Fed is succeeding in fighting inflation and easing the lives of citizens. The Fed itself repeatedly emphasizes its political independence. Its board members are appointed by the White House and confirmed by the Senate but are then largely politically insulated. According to historical and global experiences, this independence has positive long-term effects on economic stability, which could be jeopardized by political intervention. The possibility of Trump's re-election and his potential attempts to influence Fed policy directly or indirectly worry some economists. He could appoint new Fed members whose terms would fall within his years in office, or continue public criticism of the Fed and attempt to draw certain regulatory tasks of the central bank closer to the White House. Although politicians currently have little direct influence on Fed policy, the topic will surely remain a hot topic of discussion in the coming weeks.