Trump is set on bringing the Federal Reserve to heel. Over the summer he succeeded in installing one of his key economic advisers, Stephen Miran, on its Board of Governors, attempted to remove another Governor, Lisa Cook, and stepped up his long-standing feud with the Federal Reserve Chair, Jerome Powell. Trump himself appointed the Republican investment banker in 2018, but since being re-elected has been exasperated by Powell’s commitment to shield the central bank from political interference. How should we understand Trump’s pressure campaign against the Federal Reserve? What might be its effects on economic policymaking? And how should the left respond?

Trump’s immediate objective is to lower interest rates – which in his view Powell has been doing too slowly – with a view to spurring economic growth and reducing the cost of public borrowing. The Federal Reserve has been proceeding cautiously because drastically cutting short-term rates would increase inflation – currently at 3 per cent, above its target rate of 2 per cent, and edging up – which would undermine investor confidence and push up longer-term rates. The administration’s fixation with lowering them therefore makes little sense unless it is seen as part of a broader offensive for control over monetary policy. That could include tinkering with inflation metrics (the administration has shown a proclivity for manipulating data or obstructing its collection), or some version of price controls (‘deals’ whereby key industries are offered political and economic favours in return for moderating price increases). Most importantly, however, the Federal Reserve’s quantitative easing programme serves to put a floor under asset values, while their impact on consumer price inflation is much less direct. Control over this – and repurposing it to advance MAGA-aligned interests – is the real prize.

Last week, Treasury Secretary Scott Bessent insinuated that the central bank’s recalcitrance was partly to blame for the recessionary tendencies visible in some sectors of the economy. He has also taken to the pages of the Wall Street Journal to attack quantitative easing, accusing the central bank of having become a ‘de facto backstop for asset owners’ that enriches investors at the expense of the rest of society. The Trump administration, Bessent claims, wants to reverse that ‘mission creep’ and restore the Fed to a narrow focus on financial stability. Liberal commentators have rushed to the central bank’s defence, seeing the Trump administration’s attacks as another front in its campaign against political norms and institutions. Paul Krugman, for example, denounced Bessent’s intervention as ‘vile, underhanded and sleazy’, insisting that quantitative easing was the only way the Federal Reserve could keep the economy afloat in the wake of the 2008 financial crisis. Krugman is correct that the policy was not a conspiracy. Nevertheless, the inequities baked into the logic of macroeconomic stabilisation mean that the dramatic growth of the financial safety net swelled the pockets of the asset-rich class while locking the middle class out of home ownership.

However accurate on its own terms, the sincerity of Bessent’s critique is certainly questionable. It’s hard to believe that the Treasury Secretary – a former hedge fund manager who, with an estimated net worth of at least $600 million, is one of the wealthiest members of the wealthiest cabinet in the history of the United States – is losing much sleep over the growth of inequality. And his feelings about bailouts evidently vary according to the beneficiaries. When they include a kindred political spirit like President Milei, along with hedge fund colleagues heavily invested in the Argentine peso, he is in favour. By contrast, when asked what his response would be if New York City were to need federal help as incoming Mayor Zohran Mamdani tries to fix the cost-of-living crisis, he cited Gerald Ford’s message for the city half a century ago: ‘Drop dead’.

At the heart of the clash is a key difference between approaches to risk socialization. When a firm or sector comes under pressure, the Federal Reserve’s primary concern is the systemic threat that it poses – even if stabilising measures benefit the too-big-to-fail constituency first and foremost. The administration, by contrast, is more interested in a discretionary, patronage-based approach. Though more selective, the latter is not necessarily cheaper. For example, the Fed may want to deal with the all-but-inevitable bursting of the AI bubble the same way it handled the end of the dot-com era – by providing extensive liquidity but nonetheless accepting the substantial depreciation of many tech assets. The administration will likely want to offer much more, since the tech companies have become key allies, with strategic roles both in the MAGA media machine and in the expansion of surveillance and military capabilities.

It would be difficult for the Treasury to organize such interventions on its own. Even under normal circumstances it requires the Federal Reserve’s active support to maintain an ‘orderly market’ in government debt, and it would now have to finance wartime-level federal deficits. Dramatically increasing public borrowing would also further alienate deficit hawks, still a powerful constituency in Congress. Trump’s Treasury therefore needs the Fed. Bessent’s aspiration is not for a pared-down central bank as his rhetoric suggests, but one that wields its powers to advance the executive’s priorities.

Such ‘fiscal dominance’ is anathema to mainstream economists. Krugman’s critique of the disconnect between Bessent’s diagnosis – the Fed has been captured by special interests – and his solution – to bring the Federal Reserve into the orbit of executive power – is perfectly correct. But we can reject Bessent’s solution without going to the barricades to defend a naïve and misleading idea of the Fed’s independence, one that overlooks the imbrication of its stabilisation apparatus with Wall Street’s largest balance sheets. Doing so only gives the MAGA programme traction: ordinary people are suspicious of the Fed’s claims of neutrality, and with good reason.

The principle of central bank independence dates to the ‘accord’ of 1951, when the Federal Reserve secured the right to increase interest rates even when such measures were bound to push up the Treasury’s borrowing costs. The status of that norm nevertheless remained uncertain for several decades: the Fed had more room to combat inflation, but it remained highly attuned to the cost of public borrowing as well as presidents’ concerns with growth and employment. A decisive shift occurred at the end of the 1970s when Jimmy Carter handed the monetary reins to Paul Volcker, who soon declared that he was going to arrest the growth of the money supply and let interest rates rise to whatever level was required to bring down inflation – at the time well above 10 per cent – ignoring entreaties from special interests, politicians included. Yet, as critics have long noted, central bank independence was always more myth than reality and the technocratic focus on stability hardly neutral in its effects – witness the severe recession triggered by Volcker’s aggressive tightening. Even as the Federal Reserve became more autonomous, the financial stabilisation measures it developed protected systemically important banks – the bailout state, scaled to new proportions following the financial crisis with the turn to large-scale asset purchases.

Powell’s term expires in May next year, and in the next few months Trump will appoint a successor who he hopes will be more responsive to his wishes. Bessent is currently interviewing candidates. One of the frontrunners is Kevin Warsh, a Bessent confidant. Styling himself as a present-day Volcker, Warsh believes that a central bank narrowly focused on keeping the growth of the money supply in check will command a level of credibility that will naturally produce lower rates. Hopes for a repeat of the Great Moderation – the era of low interest rates that followed Volcker’s tenure – are bound to be disappointed, however. The conquest of inflation in the eighties was critically dependent on a series of other developments: the decimation of unions, the rise of China as a supplier of low-cost imports, and the ability of financial markets to absorb liquidity and so prevent it from ‘chasing too few goods’ and pushing up consumer prices. Perhaps Warsh recognises this, which would explain why he does not in fact envisage a repeat of shock therapy. On the contrary, he has indicated that because the central bank’s quantitative easing policies mean that it is in effect playing on fiscal policy terrain, the Treasury is in turn entitled to a strong voice in managing the Federal Reserve’s balance sheet. The new ‘accord’ that he envisions would establish more – not less, as in 1951 – coordination between the Treasure and the Fed.

Trump may instead choose a loyalist like Kevin Hassett, current director of the White House National Economic Council, who will do his bidding for more straightforward reasons. Another contender, Christopher Waller, is favoured by the mainstream of the economics profession for his orthodox credentials and experience, though he has gone out of his way to signal that these will not stand in the way of realizing the President’s policy preferences. And then there are the rumours that Trump is toying with the idea of selecting Bessent himself, which would be the most emphatic way to communicate that the public purse and the nation’s financial infrastructure are no longer under separate authority. However the process plays out, it is hard to imagine that any new Chair who doesn’t faithfully follow orders from Washington will stay in the job for long.

Trump’s assault on the Fed is another variation on a familiar MAGA strategy: pro-market and anti-establishment sentiment whipped up to strengthen executive prerogatives. This political trick is always disorienting, but in few areas have progressives so lost their way when it comes to formulating a cogent response. With authoritarian impulses much more pronounced in the second Trump administration, central bank independence has become a major rallying point, another occasion to assert the value of apolitical expertise. Yet to regard this as a viable political strategy requires overlooking the ways in which the Federal Reserve’s stabilisation policies have driven the extreme economic polarization that has been such fertile ground for the populist right.

There is nothing contradictory about seeking to wrest control over the nation’s financial infrastructure from both Wall Street’s too-big-to-fail complex and from the ambitions of authoritarian governments. But a politics that combines those objectives, building institutions to make monetary management dependent on democratic legitimation, seems out of reach for now. The long fallout from the financial crisis has led Trump’s movement to the understanding that, to be truly transformative, it will need to control monetary policy. As the MAGA juggernaut makes a politics centred on defending the status quo increasingly incoherent, time is running out for its opposition to learn the same lesson.

Read on: Aaron Benanav, ‘Beyond Capitalism – 2’, NLR 154.