President Donald Trump has once again threatened to remove Federal Reserve Chair Jerome Powell, jeopardizing a fundamental principle of sound economic policy and inflation management: central bank independence.
On April 15, 2026, Trump declared he would fire Powell if the Fed chair continues in his role beyond the official end of his term on May 15. Powell has indicated his intention to remain until his replacement receives Senate confirmation. Under current law, Powell has the legal authority to do so.
Trump has issued multiple threats to fire Powell, while his Department of Justice has opened a criminal investigation into renovations at the Fed building. Trump has also attempted to remove Fed Governor Lisa Cook over mortgage fraud allegations. In an unprecedented video statement, Powell characterized the investigation and related actions as "pretexts" for Trump's underlying objective of pressuring the Fed to cut interest rates.
While Trump's tactics are notably aggressive, as political economists, we recognize that political attempts to influence central banks are not unprecedented. Central banks remain government institutions, and the independence they enjoy can be withdrawn through legislative changes or erosion of established norms.
An economic power struggle
The threats against Powell and Cook – along with other efforts to undermine the Fed – reflect a fundamental power struggle.
Central banks, the public institutions responsible for managing a nation's currency and monetary policy, wield considerable power. Through their control of money supply and credit, they influence economic growth, inflation, employment and financial stability.
These are levers that politicians often seek to control or influence. Monetary policy can deliver timely economic stimulus during critical periods, such as election cycles or when approval ratings decline.
The challenge is that politically motivated, short-term interventions can undermine long-term economic health, creating problems that emerge well after the immediate political benefit has been realized.
This is why central banks worldwide typically operate with substantial autonomy to set interest rates independently, insulated from electoral pressures.
Monetary policymaking that is data-driven and technocratic rather than politically motivated has been considered the gold standard for managing national finances since the early 1990s. This approach has largely succeeded in maintaining inflation at relatively low and stable levels.
Yet despite the demonstrated effectiveness of independence, central banks have faced mounting political pressure over the past decade.
Trump exemplifies this trend. During his first term, he publicly criticized his own appointee to lead the Federal Reserve and demanded lower interest rates.
These attacks have intensified during Trump's second administration. In April 2025, Trump attacked Powell in a social media post, calling him "TOO LATE AND WRONG" on interest rate cuts and declaring that his "termination cannot come fast enough!" In August, Trump took the extraordinary step of firing Cook, an action later blocked by the courts. The Supreme Court is expected to rule on the case this year.
The appeal of interfering in monetary policy is clear: low interest rates offer a rapid mechanism to stimulate economic activity. While politicians understand the risks of challenging an independent central bank – adverse market reactions or rising inflation are possible consequences – the temptation of short-term control over such a powerful policy instrument can prove overwhelming.
Legislating independence
Given the political appeal of monetary policy control, how have central banks maintained their independence? And is that independence eroding?
Generally, central banks are protected by legislation that provides long tenures for leadership, focuses policy primarily on inflation control, and strictly limits government lending.
Such legislation cannot anticipate every scenario, creating openings for political interference or practices that violate the law. Occasionally, central bankers are summarily dismissed.
Nevertheless, legal protections constrain political actors. Even in authoritarian regimes, laws shielding central banks from political interference have helped control inflation and limited central bank lending to governments.
Our research has documented how legal frameworks have insulated central banks from government interference, while also tracking the recent erosion of this legal independence.
Politicizing appointees
Globally, central bank leadership appointments are inherently political – elected officials select candidates based on professional qualifications, political alignment and their stance on inflation tolerance.
However, the degree of political control varies significantly across countries.
A 2025 study found that approximately 70% of central bank leaders are appointed by the head of government alone or with input from other executive branch officials. This alignment between central bank and government preferences can enhance the institution's democratic legitimacy, though it also increases vulnerability to political influence.
Alternatively, appointment processes can involve legislative bodies or the central bank's own board. In the U.S., while the president nominates Federal Reserve Board members, the Senate has rejected candidates deemed unconventional or unqualified.
Furthermore, many central bankers serve well beyond the tenure of those who appointed them. As of late 2023, the most common term length for central bank governors was five years, with 41 countries mandating terms of six years or longer.
The Fed chair position has traditionally enjoyed legal protection, as Powell himself noted in November 2024: "We're not removable except for cause. We serve very long terms, seemingly endless terms. So we're protected into law. Congress could change that law, but I don't think there's any danger of that."
During the 2000s, a number of countries trimmed the tenure of their central bank governors to four or five years — moves that were often part of broader rollbacks of central bank independence. Iceland in 2001, Ghana in 2002, and Romania in 2004 all followed this path.
The low inflation objective
By 2023, all but six central banks worldwide had enshrined low inflation as their primary mandate. But many are also legally required to pursue additional — and sometimes contradictory — objectives, including financial stability, full employment, or direct support for government economic policy.
Thirty-eight central banks operate under either an explicit dual mandate covering price stability and employment, or a more expansive set of goals. Argentina's central bank, for instance, is charged with promoting "employment and economic development with social equity."
Competing mandates create openings for political interference. In the United States, the Federal Reserve carries a dual mandate — stable prices and maximum sustainable employment — that economists generally regard as complementary. The prevailing view holds that low inflation is, in fact, a prerequisite for durable job growth.
Yet during periods when high inflation and high unemployment coincide — as they did in the late 1970s and again as pandemic-era stimulus faded in 2022 — the Fed's dual mandate has become fertile ground for political pressure. Since 2000, at least 23 countries have expanded their central banks' mandates beyond inflation control alone.
Limits on government lending
The earliest central banks existed largely to help governments finance wars. Today, the calculus is reversed: constraining how much central banks can lend to governments is now considered essential to protecting price stability against the pressures of unchecked fiscal spending.
History offers cautionary examples. In the 1960s and 1970s, Latin American central banks routinely printed money to fund government programs — a practice that unleashed rampant inflation without delivering the promised gains in economic growth or political stability.
In the developing world today, strict limits on government lending are strongly associated with lower inflation. Central banks that enjoy genuine independence can refuse a government's financing requests outright or set the terms on which loans are extended.
Even so, nearly 40 countries have over the past two decades weakened their central banks' capacity to restrict government borrowing. In the more extreme cases — Belarus, Ecuador, and even New Zealand among them — central banks have effectively been repositioned as potential government financiers.
Scapegoating central bankers
In recent years, governments have sought to sway central banks through a range of tactics: lobbying publicly for lower interest rates, issuing statements that criticize monetary policy, and summoning central bank leadership for politically charged meetings.
Paradoxically, the same politicians applying that pressure have also blamed central bankers for a litany of failures: failing to foresee the 2007–09 financial crisis; overstepping their authority through quantitative easing; and generating sweeping inequality or financial instability in their efforts to stabilize the banking sector.
Since mid-2021, major central banks have struggled to contain inflation, giving populist and antidemocratic politicians fresh ammunition to question the value of keeping monetary policy at arm's length from government.
But history is unambiguous: undermining central bank independence — particularly in the name of forcing interest rate cuts to juice the economy, as President Trump has pursued by threatening to dismiss the Fed chair and attempting to remove a member of the Board of Governors — is a reliable path to higher inflation, not lower.
This is an updated version of an article that was originally published on June 14, 2024.
The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
