Why democracy needs independent monetary policy - Or: Why Trump wants to get rid of Powell
#385
Friend of Democracy,
Do you sometimes wonder why Donald Trump insults the head of the US Federal Reserve, Jerome H. Powell, so viciously?
Trump has branded Powell a "major loser," a "numbskull", and a "stubborn mule" and has said that he should "resign immediately".
So why does Trump want to get rid of Powell, who has been the 16th chair of the Federal Reserve (or simply the Fed) since 2018?
The answer in a sentence: Because an independent monetary policy is a thorn in the side of populists and autocrats.
Let's get into this.
A key task of a central bank is to keep the value of money stable. To do so, it sometimes has to take measures that have negative short-term effects. In times of rising inflation, a central bank usually raises interest rates. Interest rates are the price at which a central bank lends money to banks. These banks, called commercial banks to distinguish them from central banks, lend money (i.e., provide loans) to businesses and individuals. If a commercial bank borrows money from the central bank at high costs, it will also raise interest rates for its customers. The result: fewer loans are issued. Companies stop expanding their production. Fewer houses are built. Fewer smartphones purchased. In other words, higher interest rates of the central bank lead to less money in circulation and fewer loans being issued. Lower demand leads to lower prices, and inflation falls.
This is how central banks regulate inflation.
But curbing inflation comes at a price. At the price of a weaker economy in the short term.
Since stable prices are a prerequisite for economic growth, one could also say that with rising interest rates, the central bank is accepting a short-term disadvantage to enable a prosperous economy in the long term.
Since politicians like to think in the short term (the next election is usually just around the corner), the central bank in many democracies has been removed from day-to-day political affairs. Central Bankers should be able to pursue their goal of a stable currency in peace, without politicians being able to demand and enforce lower interest rates, so that the economy can rebound in the short run.
Government politicians love rebounding economies because it boosts their poll numbers.
That's why Trump wants the Fed to lower its interest rate. Trump wants quick results. More growth. Today. He's not interested in the long term. And therefore not in the well-being of the people. He's interested in his well-being. And his well-being means good poll numbers.
That's why Trump wants to fire Powell.
But even for Trump, that's not easy.
Even a president like Trump can't just sack the Fed Chair on a whim—it's legally only permissible "for cause." So Trump is looking "for cause". He has repeatedly criticised the costly $ 2.5 billion renovation of the Fed's headquarters. Trump's administration has suggested mismanagement here could be grounds—i.e., a "for-cause" justification—to remove Powell. Legal experts call this a potential pretext for political manoeuvring.
Others have it easier—for example, Recep Tayyip Erdoğan in Turkey. Between mid-2019 and early 2021 alone, Erdoğan fired the central bank chief three times. The result: Inflation rates in Turkey are incredibly high. As of July 2025, annual consumer price inflation stood at 33.5 per cent. Last year, it was even worse, reaching 75 per cent in May 2024.
One autocrat is smarter than ErdoÄŸan and Trump: Vladimir Putin.
Putin is sticking with his central bank chief, Elvira Nabiullina (who has held the position since 24 June 2013). Nabiullina pursues an uncomfortable monetary policy but keeps inflation somewhat under control in Russia. Annual inflation for July 2025: 8.8 per cent.
Putin's commitment to Nabiullina is more than just an indication that the Russian dictator has a plan, I guess. Putin doesn't think in the short term. He is a (terrible) strategist through and through. That makes him all the more dangerous.
See you in Democracy,
Johannes Eber