From wartime financing to Trump’s Cook removal attempt, history shows how reduced independence leads to higher inflation and instability.
By: Robert Koloshuk
Chief Investment Officer at WaveFront GAM
Presidential History
Attempts to influence policy decisions at the U.S. Federal Reserve are not something new; there are incidents that date back to the Fed’s inception by Woodrow Wilson in 1913, where the Fed was structured to have both political accountability and independence, but his administration maintained informal oversight in its early years.
Franklin Roosevelt (1933 to 1945): Pressured the Fed during the Great Depression and WWII to keep interest rates low to support government borrowing.
Harry Truman (1945 to 1953): Pushed the Fed to cap interest rates to help finance Korean War spending.
Lyndon B. Johnson (1963 to 1969): Summoned Fed Chair William McChesney Martin to his Texas ranch and pressured him not to raise rates during the Vietnam War and Great Society spending.
Richard Nixon (1969 to 1974): Pressured Fed Chair Arthur Burns to maintain low rates before the 1972 election.
Ronald Reagan (1981 to 1989): Applied less direct pressure than Nixon, but political tension existed during periods of high rates which hurt Reagan’s early popularity.
George H. W. Bush (1989 to 1993): Criticized Fed Chair Alan Greenspan for keeping rates high during the early 1990s recession.
Donald Trump (2017 to 2021): Publicly criticized Fed Chair Jerome Powell for raising rates, arguing it slowed economic growth.
Powell and the Pandemic Aftermath (2021 to 2023): Inflation surged to levels not seen since the early 1980s, yet the Fed under Powell maintained its independence, hiking rates aggressively despite political and public pressure. This reinforced credibility, but at the cost of widespread criticism.
Trump 2.0 and the Cook Removal Attempt (2024 to 2025): The attempt to fire Fed Governor Lisa Cook represents a new, unprecedented phase: direct presidential intervention in the Fed’s composition, not just its policies.
U.S. Inflation Rate vs. Federal Reserve Independence
* Disclaimer
* Data Source: WaveFront & Bloomberg. FOR ILLUSTRATIVE PURPOSES ONLY.
Independence vs. Politicization
Less Independent eras:
1914 to 1951: Wartime financing and Treasury dominance
1970's: Nixon-Burns pressure
2024 onward: Trump 2.0 politicization attempt
More Independent eras:
1951 to 1970: Post-Accord credibility
1980 to 2000: Volcker-Greenspan independence
2021 to 2023: Powell hikes despite intense pressure
Ultimate Control and Politicization
Lisa Cook was appointed by President Joe Biden and confirmed by the Senate in May 2022. She was renominated in September 2023 for a 14-year term. No Federal Reserve Governor has ever been fired by a President, though some have resigned under pressure. Under the Federal Reserve Act, a Governor may be removed “for cause.” Cook has refused to resign and insists there is no cause under the law.
The implications of her removal, if successful, would give President Trump influence over a majority of the Board of Governors, allowing him to potentially direct Fed policy. This would mark a new level of politicization, far beyond jawboning, and effectively erode the independence that has anchored the Fed’s credibility.
Economic Perspective
Ray Dalio, the founder of Bridgewater Associates has been vocal about the conditions under which the Global Monetary System could break down. He highlights the five forces that drive history: the economy, internal political conflict, the international order, technology and acts of nature such as floods and pandemics. His view is that Trump’s tariff policies and growing US debt are contributing to a new unilateral world order moving away from multilateralism; this increases conflict and creates inefficiencies. The attempts to remove the independence of the Federal Reserve will further distort the free market, drive up risk premiums and potentially undermine the USD’s role as the global reserve currency; which is the “Holy Grail” of monetary instruments.
Structure of the Federal Reserve
* Disclaimer
* Source: Federal Reserve Bank of Cleveland. FOR ILLUSTRATIVE PURPOSES ONLY.
Benefits and Costs of Reserve Currency
The benefits of being the reserve currency are cheaper financing, more policy flexibility and global economic leverage. But is also carries costs; persistent trade deficits, USD strength burdens exporters and global responsibility in crises.
As Trump implements his “America First” economic policy you can expect that all tools at his disposal will be used to extract value for the USA. One of the questions you could pose is given his quest for lower interest rates, has Trump considered not just the impact on inflation, but also how policy influence could impact the desire to hold US treasuries and the potential to undermine its role as a reserve currency.
The Cost of Presidential Influence over the Fed
Globally, it is widely recognized that political interference in the setting of key interest rates carries substantial long-term costs: persistent inflation, higher borrowing costs, loss of investor confidence, reduced global influence, and greater systemic risk and instability.
In the United States, it has normally been assumed that periods of rising inflation, and the higher interest rates they require, inevitably attract political attention. Such scrutiny is viewed as rhetorical pressure from presidents focused primarily on short-term political standing. This has amounted to little more than posturing, with political leaders perhaps only acting as lagging indicators of interest rate movements, rather than active drivers of monetary policy.
Today, however, there is growing evidence that the current administration may be departing from the tradition of American exceptionalism. Political influence over interest rate decisions in the U.S. is beginning to resemble patterns seen in other nations where central bank independence has been compromised.
Conclusions
The Powell era (2021-23) showed that even under extreme inflationary stress, the Fed defended its independence. The Cook removal attempt in 2025 represents a new threshold: presidential power extending into the Fed’s governance itself. History suggests reduced independence is associated with inflation, volatility, and diminished credibility – damage that is hard to reverse.
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