Trump can rail against Powell all he wants: the Fed Chair can’t dictate rates

(Originally published July 21 in “What in the World“) The president of the Chicago Federal Reserve Bank, Austan Goolsbee, said out loud Friday what many investors and economists already know: Trump’s constant tariff threat makes it almost impossible for the Fed to give him what he wants—lower rates.

Even the threat that tariffs might suddenly go up creates an inflationary pressure that complicates the ability of the Fed to lower its benchmark interest rate. Goolsbee’s comments are a reminder, though, that whether or not Trump fires Federal Reserve Chair Jerome Powell, it’s not the chair who sets the benchmark federal funds rate. It’s set by the 12-member Federal Open Market Committee at its eight yearly meetings. And those 12 members include: the seven members of the Federal Reserve System’s Board of Governors, the president of the Federal Reserve Bank of New York, and four seats that rotate between the members of four regional groups:

• Boston, Philadelphia, and Richmond;
• Cleveland, Ohio and Chicago;
• Atlanta, St. Louis, and Dallas;
• and Minneapolis, Kansas City, and San Francisco.

And who is on the seven-member Board of Governors? Well, the Fed Chair, naturally, as well as two vice-chairs, along with four other governors. All seven are nominated by the U.S. President for 14-year terms and confirmed by the Senate. But the president of the New York Fed is, like the president of all 12 regional Fed banks, appointed by their own board of directors, subject to the approval of the Fed’s Board of Governors.

Those regional Fed boards of directors have a measure of independence from the Washington-appointed Fed board of governors. The Fed board of governors appoints only three of their nine directors. The other six are elected by the commercial banks in their respective districts.

Powell and two other Fed governors were appointed by Trump, but the majority owe their seat to former President Joe Biden:

• Jerome Powell: Chair (Trump, term ends Jan. 31, 2028)
• Philip Jefferson: Vice Chair (Joe Biden, term ends Jan. 31, 2036)
• Michael Barr: Vice Chair for Supervision (Biden, term ends Jan. 31, 2032)
• Michelle Bowman (Trump, term ends Jan. 31, 2034)
• Lisa Cook (Biden, Jan. 31, 2038)
• Adriana Kugler (Biden, filling unexpired term ending Jan. 31, 2026)
• Christopher Waller (Trump, filling unexpired term ending Jan. 31, 2030)

The President of the Federal Reserve Bank of New York, John Williams, has been in that position since 2018. Before that, he spent seven years as president of the Federal Reserve Bank of San Francisco.

So, Trump arguably only controls 25% of the FOMC. Firing Powell and replacing with a more loyal Fed Chair, therefore, is no guarantee he’ll get the rates he wants. And there’s little chance he can pack the FOMC before the end of his current term: the only seat coming up for replacement is Adriana Kugler’s next January. Even if Trump replaces her with a policy crony, he still won’t be able to dictate FOMC decisions.

It sure won’t stop him from trying, though.