Miles Sklare

March 13, 2026

As Federal Reserve Chair Jerome Powell was announced to be under investigation, sympathetic pundits, executives, and politicians across the aisle jumped to the defense of the Fed chief [1][2]. They criticized the Department of Justice’s investigation into Powell’s office renovations as a retributive attack on the ‘independence’ of the world’s arch-central bank. An alleged law-fare offensive undertaken against the Fed in response to its governing board’s refusal to lower its policy interest rate to a figure desired by President Trump. This is not the first time Donald Trump has scuffled with Jerome Powell, as during the President’s first tenure in office, he criticized Powell–his own appointee–for raising the funds rate in 2019 [3]. This current drama and discussions on central bank sovereignty need to be contextualized in the broader field and history of monetary policy, the Fed’s role in the housing market, and what the entire idea of Federal Reserve independence even means.

Fed Independence And The History of the Dual Mandate

In short, the independence of the Federal Reserve is the independence of its day-to-day operational decisions, in pursuit of the dual mandate, from the elected political sphere of Congress and the President. The basis of this insulation is the fear that, should the government’s bank be directly controlled by an administration or legislature, it could simply be used to indiscriminately finance all spending schemes of said government–‘money printing’–by ensuring purchases of Treasury bonds [4]. A more cynical take on this concept of independence would suggest that the technocratic bank is moated from the democratic desires of the electorate. Understanding the situation today requires taking a look back at the historical context of the Fed’s importance.

When in 1946 Congress legally mandated responsibility for high employment and growth to the federal government, monetary policy seemed to be on the backburner. The spending and tax policies of the government would be the primary tool to achieve the aforementioned goals [5]. Whether in the form of military spending, social programs, public works, or deficit boosting tax cuts, the balance of federal fiscal expenditure drove two decades of generally high growth and employment across the 1950s and 60s, while the Fed took a backseat and kept the policy rate low. However, this reality changed at the turn of the 1970s, with a new reality of accelerated  inflation and unemployment–stagflation–taking hold. The origins of this phenomenon are beyond the scope of this article, nonetheless, this new challenge complicated fiscal and monetary policy. If the Fed pursued a higher rate policy, it could work to suppress inflation, but it would simultaneously exacerbate unemployment by depressing overall growth. If the federal government expanded spending, it could boost employment and growth, but it might also further exacerbate inflation. Administrations over the 1970s pursued schizophrenic policies of tax raises followed by cuts, spending boosts followed by restrictions, price and credit controls followed by financial deregulation. The fiscal fine tuning which secured prosperity priorly no longer seemed to be capable of arresting the turbulence of the day, as stagflation continued its long march. For the earlier part of the decade, Fed policy too was erratic, moving between high and low rates with no clear path in either direction. It was in this uncertain context that Congress passed a 1977 reform act, officially charging the Federal Reserve with a ‘dual mandate’ to pursue ‘maximum employment’ and ‘price stability’ [6]. The latter responsibility was paramount, with it being the first instance of inflation control being set as a priority. This was followed by the appointment of Paul Volcker as Fed chair by President Carter, and the immediate pursuit by the former of a deeply contractionary policy rate to break the back of the ‘Great Inflation’. With the Fed’s policy sending interest rates across the economy into the double digits, growth and employment collapsed and the country fell into a deep recession [7]. The corollary of this collapse was a major decline in the inflation rate over just a few years, granting legitimacy to the primacy of monetary policy for overall economic policy. With the Fed and its monetary policy in the driver’s seat, fiscal policy seemed to take a demotion in the eyes of policy makers, at least rhetorically [8]. Fiscal policy reemerged as a hot object after the Great Recession, as monetary policy, exemplified by quantitative easing, seemingly failed to produce recovery and growth, instead overseeing a decade of ‘secular stagnation’, which came to a close during the COVID-19 pandemic. In response to the massive economic disruptions which followed the virus, the federal government, across both the Trump and Biden administrations, initiated multiple programs of fiscal stimulus, amounting to trillions in spending [9]. This sent the US economy roaring back into operation following the reopening, with unemployment falling towards the floor and growth rates shooting up. However, in 2021, an acceleration in the rate of inflation not seen in decades began to exacerbate an affordability crisis. This crisis affected every corner of American’s lives, from groceries and gas to housing and healthcare. In response, the Federal Reserve under Chairman Powell began to raise their policy rate to combat this inflationary spike. As inflation began to fall and the economy started to slow, Powell’s Fed began lowering the rate gradually. When President Trump assumed the White House in 2025, he began pushing for Powell to drop the rate at a faster pace. 

Monetary Policy: What is it doing today?

Why, in the first place, does President Trump seek a dove-ish turn in monetary policy? Since the shift to monetary policy primacy, it has been commonly understood that Fed policy— working on the vast array of term structures that exist across many debt securities—is the key tool with which the government can act to ‘fine tune’ mortgage rates, job creation, and broader macroeconomic aggregates like investment and consumer spending. As illustrated above, the shifting of the goals of ‘maximum employment’ to the Fed’s balance sheet finds its origins in the late 1970s with the dual mandate. Though the extent of interest rate changes’ effect on overall business investment is debated, there are some critical sectors which are very sensitive to changes in interest rates [10]. The housing construction sector being the relevant one in the current scuffle [11]. As the Fed raised its rate in 2022, mortgage rates also increased greatly, making it more difficult for Americans to purchase houses. Simultaneously, the rising interest rates put a squeeze on the housing construction industry, leading to a decline in investment. Jointly, the rise of mortgage costs and decline in home building has led to a large rise in home prices, making homeownership even more difficult for younger Americans [12]. Powell justifies his caution in lowering rates in the possibly inflationary effects of the protectionist trade policy pursued by the President. The President, on the other hand, desires a drop in rates to improve housing affordability. However, confusingly, President Trump has stated he will both make housing more affordable, while also protecting the home values for current owners [13]. This contradiction suggests a tension in his electoral base: older homeowners who benefit from rising home prices stacked up against younger supporters who desire cheaper housing and mortgages . Regardless of this disjunction, the President is likely to push for lower rates despite its potentially depressive effects on home value.

Why Fed ‘Independence’ In The First Place?

In the aftermath of the investigation announcement, a great defense of Powell and the Fed’s independence was put forward from a diverse chorus of figures from other central bankers, Republican politicians, Democratic leaders, and banking-brokerage executives. They argued in favor of the independent discretion of the Fed board, but why? Is there some correlation between the degree of Fed independence and sound monetary policy? Why should Fed policy be independent of the democratic will [14]? The former is a very idealistic proposition, as popular opinion on Fed policy doesn’t necessarily translate to sound policy. Lower housing prices and mortgage rates would benefit the bulk of Americans, so why in this situation would it be good to promote Fed independence vis-à-vis the policy goal of the current administration? Is it about principles–rule of law, separation of powers–or partisan politics? The lax response in markets in response to the investigation signals that Trump’s move is viewed inconsequentially by global asset traders, as the global centrality of the dollar buffers much of the policy volatility that comes out of Washington [15]. As Powell’s chairmanship lapses this year, the debate over Fed independence will only intensify. It will continue to be important to ask if Fed ‘independence’ is something that is truly in the best interest of the American people, however defined.

Image Credits: https://www.flickr.com/photos/federalreserve/52245571118

Works Cited

[1] “Statement from Federal Reserve Chair Jerome H. Powell.” 2026. Federal Reserve. https://www.federalreserve.gov/newsevents/speech/powell20260111a.htm.

[2]., Dominik A. 2026. “The big central banking lie Global finance is really in charge.” UnHerd. https://unherd.com/2026/01/the-big-central-banking-lie/?edition=us.

[3] FRED. n.d. “Federal Funds Effective Rate (FEDFUNDS) | FRED | St. Louis Fed.” FRED. Accessed March 5, 2026. https://fred.stlouisfed.org/series/FEDFUNDS#.

[4] Wray, L. Randall. n.d. “Central Bank Independence: Myth and Misunderstanding.” Levy Economics Institute of Bard College.

[5] Blinder, Alan. n.d. “A Monetary and Fiscal History of the United States, 1961-2022.” https://www.milkenreview.org/articles/a-monetary-and-fiscal-history-of-the-united-states-1961-2022.

[6] Steelman, Aaron. 2011. “The Federal Reserve’s “Dual Mandate”: The Evolution of an Idea.” Federal Reserve Bank of Richmond, (December). https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/economic_brief/2011/pdf/eb_11-12.pdf.

[7] Barker, Tim. 2019. “Other People’s Blood.” n+1. https://www.nplusonemag.com/issue-34/reviews/other-peoples-blood-2/.

[8] Fiscal policy in the form of large budget deficits over the 1980s, driven mainly by military spending, persisted, but leading politicians preached the end of ‘big government’ and ‘fiscal irresponsibility’ in their speeches and party platforms, even if not actually pursued in practice.

[9] “COVID Relief Spending.” n.d. USAspending. Accessed March 5, 2026. https://www.usaspending.gov/disaster/covid-19.

[10] Sharpe, Steve A., and Gustavo A. Suarez. 2014. “The insensitivity of investment to interest rates: Evidence from a survey of CFOs.” Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.

[11] Mui, Preston. 2024. “Where High Rates are Restricting Investment.” Employ America. https://www.employamerica.org/monetary-policy/where-high-rates-are-restricting-investment/.

[12] “S&P Cotality Case-Shiller U.S. National Home Price Index.” n.d. FRED. Accessed March 5, 2026. https://fred.stlouisfed.org/series/CSUSHPINSA.

[13] Revell, Eric. 2026. “Trump says admin will lower housing costs, keep home values up.” Fox Business. https://www.foxbusiness.com/politics/trump-pledges-make-housing-affordable-while-keeping-values-up.

[14] Moyle, Andy. 2026. “Trump and the Fed: an MMT perspective.” Richard Murphy. https://www.taxresearch.org.uk/Blog/2026/01/13/trump-and-the-fed-an-mmt-perspective/.

[15] “Wall Street ended higher, shrugging off concerns over Powell investigation.” 2026. Seeking Alpha. https://seekingalpha.com/news/4538407-wall-street-moves-lower-amid-powell-investigation.