The importance of preserving the independence of the U.S. Federal Reserve

Nicolas Jabko is the author of the forthcoming book, Technocrats in Turmoil: The Fed, the ECB, and the Changing Politics of Money (Cambridge University Press, March 2026). His other published books and articles have focused on European politics and political economy from a comparative and international perspective. His current research interests include central banks and the politics of money, neoliberalism, crisis politics and sovereignty.

Image caption: Nicolas Jabko

The U.S. Federal Reserve—and its control over interest rates—has become a flashpoint in U.S. politics. There's a fierce debate about the independence of the Fed, with experts saying the institution should be insulated from political whims and leaders seeking to exert more control. Johns Hopkins political scientist Nicolas Jabko explains the history of political interference at the Federal Reserve and why its independence is critical for the national and global economy.

Why is the Federal Reserve's independence considered to be so important for the nation and the world?

The standard rationale for the Federal Reserve's independence is to prevent monetary policy from becoming a political football, at the cost of major economic instability. These days, for example, President Trump is pushing the Fed to drastically lower its interest rates. If the president gets his way, lower interest rates may boost economic growth in the short term, which would help Trump's poll ratings. But Americans may ultimately suffer if that short-term boom causes the economy to overheat and prices to rise more rapidly. In addition, a radical turn toward easy money could quickly backfire, since the Fed does not directly control long-term interest rates. If markets start to believe that the Fed is not independent and therefore not credibly committed to low inflation, then the interest rates that most people pay when they take out loans or mortgages may very well go up.

The Fed manages the nation's money supply; but that money, the U.S. dollar, also happens to be the leading currency in the global economy. So the Fed is a crucial institution not just in the United States, but also for the global economy. Other countries expect the Fed to ensure U.S. economic stability, but also global economic stability—especially in times of crisis. If the Fed ceased to play that role, then this would inevitably raise questions about the status of the dollar as a global currency and about America's global economic leadership.

When has the Federal Reserve's independence been challenged in the past and what were the results?

The last time this happened in a serious way was in the 1970s. President Nixon then kept pressing Arthur Burns, the chair of the Fed, to keep interest rates low, even though inflation was clearly rising. This led to a long spiral of inflation that the Fed was unable to stop until Paul Volcker became Fed chair in 1979. As chair, Volcker strongly asserted the independence of the Fed, by raising interest rates to unprecedented levels. This marked the beginning of a long period of low inflation, which explains why the Fed's ability to deliver economic stability is today sometimes taken for granted. But people often forget that inflation rose to very high levels in the 1970s, and that the Fed's victory over inflation in the early 1980s was achieved at the cost of a major recession and the destruction of many jobs.

How do the current administration's actions toward the Federal Reserve differ from the past?

Since Nixon, no president has so blatantly disregarded the Fed's independence. Of course, it's almost natural for presidents to want lower interest rates, since they want to boost economic growth and to create jobs. But previous presidents (after Nixon) also recognized that there were good reasons for the Fed's independence, so they generally deferred to the Fed's expertise on monetary policy. President Trump stands out because he has repeatedly pressured and even insulted Fed chair Jay Powell, even though Trump himself first chose Powell. Trump seems to believe the Fed chair's job is to serve and obey him. And he has also actively tried to pack the Fed with loyalists.