Will The Federal Reserve Independence Stand the Test of Time?
- Claire Carpenter
- 2 days ago
- 2 min read
For 113 years, the Federal Reserve System has functioned as the United States’ supervisor of monetary policy, working diligently to maximize the level of employment within the U.S. and to keep prices stable. One strong way that the Fed achieves this goal is by solely focusing on what actions would best fit the current markets, given recent economic growth trends, employment levels, consumer spending, and many other statistical reports. Part of this includes taking actions to curb inflation or improve employment, even when these actions could conflict with the wishes of current political leaders.
The Federal Reserve uses tangible tools like the Fed Funds rate, open market operations, and reserve requirements to achieve its goals. In addition to this, a credible central bank can even use its power of influence to impact the economy without making policy changes, but by simply announcing or hinting that it might. The power of their influence comes from the credibility it has established by implementing effective policies in the past. When Woodrow Wilson signed the Federal Reserve Act, the Fed was established as a government institution, but one that intended to be separate and independent from any political affiliation or administration. Keeping the Fed independent not only maintains the best interest of the American people, it also strengthens the bank’s credibility as an effective economic mitigator. The question of political independence within the Federal Reserve System is a strained one, especially as the current Fed Board’s decisions have not been appealing to President Trump’s hopes for the economy.
A recent legal dispute on capital hill will be a true test of the independence of the central bank of the United States: Trump v. Cook. In late August of 2025, President Trump published a letter on social media in which he claimed that he would remove Federal Reserve Board Governor Lisa Cook from office, alleging mortgage fraud. Trump’s claim to this authority is on the “for cause” clause within Article II of the Federal Reserve Act, which states that the president cannot remove a board member solely based on will. However, with Cook disputing the truth of these allegations and the indirect communication of her termination, the President’s process of terminating Cook is questionable from a legal standpoint. The Supreme Court is set to hear oral testimonies on this case on January 21, and could make a precedent-setting decision on procedural and “for cause” power the president has over the central bank.
In addition to the Trump v Cook court case, Fed Board Chairman Jerome Powell is currently under investigation by the Justice Department over the renovations of the Fed buildings this past summer. Conflicts between the federal government and the Federal Reserve are not uncommon, but it will be interesting to see how these tensions and legal battles escalate. The power dynamics between these two institutions might be redefined in the next few weeks: potentially redefining the structure of the United States’ strongest economic mediator as well.
Sources:
Macroeconomics, 11th Edition by Abel, Bernanke, & Croushore, 2024
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