Central bank independence is the most crucial element of sound monetary policy, with the central bank's primary goal of keeping inflation within a narrow band. Attacking this independence through coercion or interference will erode confidence in the stability of the currency and set in motion macroeconomic upheaval.

The independence of the United States Federal Reserve (the "Fed") has been challenged by the current U.S. administration through multiple means: badmouthing members of the Board of Governors, appointing administration-friendly members with weak credentials, dismissing a member of the Board without due cause, and attacking the Fed's Chair with an ill-founded criminal investigation.

The Fed's Board of Governors is composed of seven members that are nominated by the U.S. President and confirmed by the U.S. Senate for a 14-year term each, with one term starting every two years. The Chair and the Vice Chair of the Board of Governors are appointed from among the Board members, serve for four years, and are nominated by the U.S. President and confirmed by the U.S. Senate. The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy in the United States. The Fed's monetary policy is carried out through three tools specifically. The discount rate and reserve requirements are set by the Board of Governors, while the Federal Open Market Committee (FOMC) carries out open market operations that include, importantly, the federal funds rate through buying and selling government securities. (In Canada, the equivalent is the Bank of Canada's overnight rate.) The FOMC has twelve members: the seven governors, plus five presidents of Federal Reserve Banks chosen from among eleven Reserve Bank presidents. The latter five seats are filled on a one-year rotating basis from regional groups of Reserve Banks. Unlike other central banks, the Fed is tasked with two goals. In addition to promoting stable prices, they are also tasked with promoting maximum employment. This "dual mandate" implies potential trade-offs. The FOMC decides whether monetary policy is "accommodating" to encourage economic growth or is "restrictive" to slow economic growth. Under normal circumsstances, decisions are made based on economic and statistical evidence that carefully weighs economic consequence—and is often accompanied with careful "forward guidance" to calibrate expectations by households and businesses.

The current U.S. administration has targeted two members of the Board of Governors in particular. The first target was Lisa Cook. The U.S. president attempted to remove Governor Cook from the Board in August 2025 by accusing her of mortgage fraud. While the U.S. president can remove a Board member for cause, the prevailing interpretations define "for cause" as inefficiency, neglect of duty, or malfeasance. On September 2 of 2026, an open letter from 593 economists (including Nobel laureates) defended the Fed's independence in an open letter. Subsequently, Cook sued the U.S. President and argued that the U.S. President lacked authority to terminate her appointment. On September 9, a federal judge issued a preliminary injunction that blocked the President's removal of Cook from her position, and this decision was upheld by an appeals court. The case is now before the U.S. Supreme Court, which will start hearing the case later in January.

In January 2026 the U.S. administration doubled down with a new attack against Fed independence. The administration launched a "criminal investigation" against the Fed Chair Jerome Powell, who the President had called "incompetent" and "crooked". It prompted Powell to respond with a public statement that included the following passage: "The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president." This assessment is rather obviously true. The criminal investigation would not have been staged if the FOMC had followed Trump's wishes to lower interest rates. The actions of the U.S. administrations are blatant attempts at intimidation and bullying the Fed into submission.

It is important to emphasize what would happen if the U.S. president succeeded in eroding central bank independence. Lowering interest rates would drive up inflation and lead to a depreciation of the U.S. Dollar against other major currencies. For an example, look at Turkey, where president Erdogan tried to lower interest rates, only to find his country facing 40% inflation. Erdogan fired three central bank governors to get his way. Since the beginning of 2020, the Turkish Lira depreciated from about 6 liras per U.S. Dollar to almost 43 liras per U.S. dollar—a depreciation by 86 percent in six years. While the U.S. economy is more resilient than the Turkish economy, there can be little doubt that aggressive interest rate cuts would set in motion economic upheaval in the United States. The markets would lose confidence in U.S. securities, demanding a higher risk premium through higher yields. This in turn would make borrowing more expensive for the U.S. government (which can ill afford it with its increasing debt load) as well as businesses and households. The U.S. president believes, erroneously, that lowering short-term interests would lower borrowing costs. But borrowing costs are linked to longer-term bond yields. For example, mortgages with a 5-year term are typically linked closely to the yield of bonds with 5-year maturity.

Americans only hope is that the U.S. Supreme Court will reaffirm the independence of the Fed judicially and put a lid on undue political interference. The Fed was created in a unique way that the U.S. Supreme Court has recognized in a previous ruling. In Trump v. Wilcox the Court wrote: "The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States." If the Court follows this line of reasoning, there is hope that the worst outcomes can be avoided. But if not, the markets will punish economic recklessness, and the American people will pay a hefty price for the follies of their president.