The election of Donald Trump just scrambled the future of the Federal Reserve. The once and future president has suggested he won’t fire Fed Chair Jerome Powell, but that’s not exactly a bullish note for the central bank to be starting off on. Trump, who has made no secret of his preference for low interest rates, will likely restart his previous habit of tweeting barbs at the Fed chief if he thinks borrowing costs are too high. Close advisers to Trump — who once questioned whether Powell was a “bigger enemy” to the U.S. than China’s Xi Jinping — have suggested the Fed chief should simply resign. Central bank officials are expected to lower interest rates again Thursday afternoon, but after that, the timing for future cuts is less clear — in part because Trump’s policies could alter the economy’s trajectory. Bond investors pushed up yields on Wednesday as they weighed the possibility that higher tariffs and fewer immigrant workers could stoke inflation. “Conceptually, Trump 2.0 could look like 1.0 in the sense of an incessant push for lower rates,” said Sarah Binder , a George Washington University professor who’s an expert on central bank politics. “What’s different is just the fiscal policy situation and the level of debt and the level of inflation that he inherits. It just looks quite different from the economy that he inherited in 2017.” What’s facing the Fed is a more dangerous environment in Washington. The president-elect says he deserves a say in the decision-making of the technocratic institution, which jealously guards its freedom to make choices without consideration of short-term politics. That’s on top of already-growing pressure on the central bank to keep the economy humming and inflation under control while both parties pile on fiscal debt. Trump’s reaction to the central bank could also serve as an early indicator of how extensively the president-elect plans to reshape traditional government bureaucracy. His stance could empower lawmakers who are long interested in altering the central bank’s approach to policy, though it’s unclear what form such reforms might take. Key Republicans in Congress have expressed a desire to tie the Fed’s monetary policy decisions more closely to formulaic rules, which tend to lead to higher rates over time. Rep. Bill Huizenga (R-Mich.) told our Eleanor Mueller that he worries the Fed is too “politically sensitive.” Some Republicans have questioned the central bank’s decision to ease off the economy, amid signs that the labor market is weakening, by cutting interest rates by half a percentage point in September, just weeks out from the election. “I believe in Fed independence, but then they have to act like they're independent, right?” he said. “I have questioned the decisions of the Fed on interest rates, even recently, as to whether they are purely independent, data-driven.” Fed officials have repeatedly said they make rate decisions solely based on their assessment of the economy. It’s not just Powell who might be in trouble. Trump’s advisers have entertained the idea that the president could remove Michael Barr, the Fed’s top regulatory czar, according to people who've spoken with them. The law isn’t clear on whether he would have the authority to do so, but Christina Skinner, an expert on financial policy at the Wharton School of the University of Pennsylvania, argued to MM earlier this year that the president has more latitude on this front than on monetary policy. Constitutionally, the power to regulate money resides with Congress, but bank regulation falls in a different category. “I think the president could remove the vice chair for supervision and that would not be an affront to central bank independence,” she said. More broadly, some of his allies are talking about reforms to the Fed. “We ought to look at governance,” Stephen Bannon told my colleague Ben Schreckinger in the wee hours of Election Night, as Trump’s victory came into focus. “The whole structure of the Federal Reserve, as a start.” (Stay tuned for a larger interview from Schreckinger on the monetary system, among other topics.) IT’S THURSDAY — This week has already felt like a year. Send predictions for what’s ahead for the Fed to your host at vguida@politico.com And as always, send tips and news to Sam at ssutton@politico.com.
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