Donald Trump is threatening to replace Jerome Powell -- or even appoint himself Fed chair.
So it's a fruitful moment to ask: Should central banks be independent.
More important, can they be indepdendent?
Or will a central bank inevitably serve their banking masters and the permanent bureaucracy -- the Deep State.
Trump vs Powell
Donald Trump has been burning up the mean tweets over Jerome Powell's strangling interest rates. He's variously called Powell very dumb, very stupid, low IQ, numbskull, major loser, and Mr Too Late.
The issue is Powell keeping interest rates at some of the highest in 30 years despite inflation running a measly 1% since Trump took office.
High rates strangles jobs, growth, consumer debt, and keeps housing on the edge of catastrophe.
And Powell’s methadone clinic stands in contrast to 112 years of the Fed cutting whenever inflation drops below 2%.
Now, some economists are uneasy with the pressure campaign. Because academic studies in monetary economics say central bank independence is a good thing.
As in keeping keeping politicians -- and their voters -- away from central banks leads to lower inflation.
Of course, it's important to note most monetary economists are literally paid by the Fed — estimates range around 60-70%. And having worked in academia, that money will go to the prestigious professors. Which the rest following along like dogs.
While some economic journals are literally run by the Fed.
So, yes, studies would say the Fed should be an economic dictatorship. You get what you pay for.
The Myth of Fed Independence
Even if we ignore potentail corruption, the problem is we don't actually have an independent Fed.
In the Fed's 112 years average rates under Republican presidents are much higher than Democrats -- 4.9% vs 3.8%.
FDR got sweetheart 1.5% rates. Reagan got 10.2%.
It's even worse adjusting for inflation: 0.7% real rates for Dems -- money's almost free. 3.1% for Republicans.
So all-you-can-eat for Democrat Presidents, 4 years of Nurse Ratchet for Republicans.
If we focus on the period since the Nixon Shock, when the gold standard was replaced with money-printers gone wild, it's actually negative 0.1% real rates under Democrats -- literally free money.
And fully 2 points higher for Republicans.
The only time the Fed breaks character is when it's time to bail out Wall Street. So 2008, 2001, or 1987.
A Tale of Two Powells
This all brings us to Powell.
Under Joe Biden he kept real rates less than a tenth of a percent. In fact, they were negative 58% of the time -- 28 months.
Joe Biden was even the lucky beneficiary of a rate cut just 48 days before the election -- the first since 2019.
Compare this to Trump's current term, where real rates have averaged 3.2% -- higher than all but 5 Democrat years in the past 112.
Powell's excuse is tariffs could raise inflation.
But there's been zero tariff inflation -- foreigners are eating tariffs like in Trump's first term.
And even the Fed admits worst-case scenario on tariffs could be 2 to 3 percent one-time inflation. Twenty times less than the Biden-era inflation Powell obediently midwifed.
What’s Next
Central bank independence is fundamentally undemocratic -- it hands our life’s work to a cartel of bankers who, in practice, deliver inflation, recession, and bailouts.
Moreover, true central bank independence is impossible. A central bank will always serve the bankers and the permanent government bureaucracy who does them favors, from millions of dollars in speaking fees to cushy golden parachutes at NGO’s, the IMF, or ambassadorships.
The Fed, like all central banks, is a key hub of the Deep State. So-called independence is a smokescreen to give that cabal total control. But so far Trump hasn’t shown an appetite to rock the boat — it’s just tweets.
Suggesting he’ll likely wait Powell out, appoint an easy money Chair.
And pray the Fed doesn’t turn on him again.
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Inflation at 1%? Does your butler do your grocery shopping? You must work from home and call a Uber when you need transportation because you clearly aren’t paying auto insurance. And your health must be so good you don’t need medical care.
Real inflation, the kind that normal wage slaves and retirees feel every day, is 8-10%. And that might be low. Interest rates need to go up, not down.
Normally I love your work. But not today. You live in a dream world.
Here’s my take:
Trump’s playbook: Trump’s a real-estate guy; he loves low rates because he, like many wealthy borrowers, is deeply leveraged. When rates fall—even into negative territory—it makes rolling over that debt a goldmine.
But that cheap money bonanza comes at the expense of ordinary Americans: inflation torches their savings, housing prices soar, and wages lag behind. Trump openly pressured Powell in his first term, demanding negative rates—and that playbook hasn’t changed.
The Powell pivot: During Trump’s first term, Powell caved hard—slashing rates to zero and blowing up the Fed’s balance sheet to nearly $9 trillion. Inflation and asset bubbles followed.
Under Biden, Powell finally seemed to come to his senses: with inflation running rampant, he aggressively raised rates, finally acting like a responsible central banker.
But now that Trump is back in office for his second term, he’s once again badgering Powell daily—calling for rate cuts and “easy money” to juice the economy regardless of the inflationary consequences. It’s déjà vu, and it’s clear this cycle is all about appearances: make the economy run white-hot while Trump’s in charge, while the poor, middle class, and savers get left holding the bag again.
Bottom line: Every president loves pulling the cheap money lever—it makes the economy look good in the short-term, but it’s like maxing out your credit card so you can party today and worry about the bill tomorrow. And guess who pays that bill?
Not Trump.
Not the billionaire class.
It’s the average worker, the saver, and the people trying to afford a home or retirement who get crushed every time.
Footnote / Additional thought:
When people say they “don’t like the Fed,” I don’t think they mean they oppose its existence outright. What they dislike is how bloated and activist the Fed has become. If the Fed stayed small and independent—just a true lender of last resort in rare emergencies—it might be respected. But instead, it’s become a hyperactive institution that caves to every political whim and inflates its balance sheet at the first sign of trouble.
Interest rates should really be set by the market—not dictated from a committee room in Washington. A free market would mean natural ups and downs, yes, but at least those would be real signals, not distortions.
As it stands today, the Fed isn’t independent. It acts at the beck and call of Wall Street and whichever president is yelling loudest, with savers and workers bearing the brunt of its overreach.