Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers, and Sohaib Nasim. A shorter version appeared at Project Syndicate.
Donald Trump has now gone beyond his usual norm-busting habits in his criticism of Federal Reserve Board Chair Jay Powell. He has harassed him to cut interest rates by 300 basis points, has heaped abuse upon Powell personally, has trumped up accusations regarding the remodeling of the Fed’s building, and has gone so far as to draft a letter to fire him. [That is, to remove him from the chairmanship. Even Trump must realize that he doesn’t have the legal power to remove Powell from the Federal Reserve Board altogether.]
It is revealing to look statistically at what determines whether Trump criticizes the Fed for interest rates that are too high versus too low. Does he have a “Taylor Rule” of his own, guiding desirable monetary policy in response to current economic conditions?
First, let us recall the standard argument why central banks should be independent. Then we will look at Trump’s Taylor Rule.
1 The importance of Fed independence
Most presidents observe the independence of the Fed scrupulously. In 1997, soon after I was Senate-confirmed as a Member of Bill Clinton’s Council of Economic Advisers, I was asked by a TV interviewer how the Administration viewed the latest monetary stance of the Federal Reserve. (Alan Greenspan was Chair at that time.) I dutifully replied, “We don’t comment on the Fed’s policy, because we have confidence that they will do a good job.” I was soon corrected by a superior: “the first part of your answer was good, but you should have omitted the second part.” The danger was that, at some future time, one might be asked, are you no longer willing to say that you have confidence in the Fed? From then on, I did what all Administration officials did and stuck to simply “we don’t comment on the Fed.”
Perhaps the most important insight from monetary economics in the last 50 years is the proposition that a country with an independent central bank, shielded from political pressure, can achieve better economic performance than a country where the central bank is under the direct control of the government. The latter set-up results in an inflationary bias, where the authorities cannot resist the temptation to stimulate the economy, and everybody knows this ahead of time, with the result that money has to expand enough to offset and validate expectations of inflation, without even reaping a bonus of higher real growth.
The Federal Reserve was granted independence at its founding. The Federal Reserve Act of 1913 says that the Chair cannot be removed without cause [i.e., malfeasance] and also that, for example, the Board’s freedom to arrange its own building cannot be second-guessed. Trump has recently asserted the power to violate both of these provisions. This even though the Act was recently reaffirmed by the Supreme Court, in recognition of the importance of shielding the Fed from political pressure.
Even Richard Nixon, the last president to pressure the Fed chair (Arthur Burns) toward an easier monetary policy [accompanied by wage-price controls], with disastrous results, at least had the sense not to do it in public, let alone amidst insults to the Chair’s competence.
Recognizing the value of central bank independence, most other major countries have, in recent decades, adopted this reform.
- Hypotheses of Trumpian behavior
The position of Trump and his supporters is that he is a better judge of what is the appropriate interest rate at any given time than is the Fed. At Davos on January 23, 2025, he claimed that he understands monetary policy better than Powell.
Even those who might not believe Trump’s claims to know more about everything than anybody [more about the tax code than tax lawyers, more about technology than the technologists, more about ISIS than the CIA, more about the military than the generals, etc.,] might reason that he was a successful businessman, and thus must know more about monetary policy than the intellectuals. So, does Trump use his experience and wisdom to judge when inflation is high or unemployment low, calling for tighter money (higher interest rates), and when inflation is low or unemployment high, calling for looser money (lower interest rates)? That is, does he have a “Taylor rule” of his own? Another possible hypothesis: Does Trump believe that interest rates are always too high, regardless of contemporary specifics, perhaps as a result of his real estate background?
- When does Trump criticize the Fed for interest rates too high?
We looked at those days on which Trump criticized Fed policy, as posted on his platform TruthSocial, or Twitter before that. We also looked at his remarks as reported in the media. There were 14 such events between January 2013 and June 2025. (No doubt there are other occasions that this source misses.) Of these 145, he viewed interest rates as too high and called for easing on 129 occasions, and interest rates too low, calling for tightening on 16 occasions.
We used Firth penalized logistic regression and OLS with robust standard errors to examine whether Donald Trump’s public calls for looser monetary policy follow a macroeconomic logic akin to the Taylor Rule. In addition to including the contemporaneous Fed funds rate, we examined the effects of the unemployment rate and CPI inflation rate on the likelihood of him criticizing monetary policy as too tight. A dummy variable indicates whether Trump was in office—defined to include the transition period following an election victory—and helps test whether his critiques are politically motivated or self-interested. Penalized log-likelihood model avoids convergence issues due to separation and allows for more reliable inference. [The 0-1 character of the dependent variable calls for Probit. But high multicollinearity prevented meaningful estimation.]
In the results for the linear probability model, InOffice is highly significant (coefficient = 0.60, p < 0.001), while the interest rate is significant but small, and the inflation term is marginally significant (p = 0.051).
The Firth model results again indicate that the only statistically significant predictor of whether Trump calls for looser monetary policy is whether he is in office. The coefficient on the InOffice dummy is large (6.62) and highly significant (p = 0.002), while the macroeconomic variables—Fed funds rate, unemployment, and inflation—are all statistically insignificant.
These results suggest that Trump’s monetary criticisms are not guided by economic fundamentals: he is far more likely to advocate looser policy when he holds office, regardless of inflation or unemployment. This one variable explains over 76% of the variation in the linear model (R² = 0.76), underscoring the extent to which his position on interest rates appears driven by political context rather than macroeconomic indicators.
Put simply, whenever Trump is in the White House, he calls for lower interest rates. (The six data points that we classified as Trump wanting lower interest rates even though he was not in office at the time are essentially claims by him that if he were to become president, his skill would reduce inflation and allow lower interest rates.)
Fed independence has never looked so good.
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A statistical appendix gives details.
This post written by Jeffrey Frankel and Sohaib Nasim.
trump knows the numbers look bad. he know the upcoming unemployment numbers were not good and would be revised down. he used that inside info to get an early start on rate drops. now he is going to have to explain why half a year of trump policy is driving up inflation and driving down employment. the economy is getting worse under his leadership. he is going to have to own it before people react to it with policy changes.
Frankel: “Put simply, whenever Trump is in the White House, he calls for lower interest rates.”
And you could say the same thing about board member Michelle Bowman. She has two dissents.
Her first dissent was in September, when Trump demanded that interest rates stay high before the election. Michelle dutifully voted against the September rate cut.
Her second dissent was this month, when Trump angrily demanded lower rates. Michelle dutifully voted for a July rate cut.
She’s making a strong bid in her audition for the position of Trump’s Fed chair but has a lot of competition from Bessent (“The president is the most economically sophisticated president, certainly for 100 years, perhaps in history.”) and Hassett (“The thing about President Trump is he became one of the most successful if not the most successful businessman in the 20th century.”) and Warsh (“Economic growth in the U.S. is poised to boom, but it’s being held down by bad economic policies coming from the central bank”.)
Oh, and then there is Peter Navarro (“”You know, a lot of people talk about Donald Trump for the Nobel Peace Prize. I’m thinking that since he’s basically taught the world trade economics, he might be up for the Nobel in economics.” ) Move over Krugman — your international economics is out of date.
Navarro is a loyal attack dog but I think even Trump realizes he’s a bit too nutty to be Fed chair. He does have some affinity with Trump, being a convict and all, but only a misdemeanor which is kind of weak compared to a felony. But he did do legit jail time so that is a cred plus among criminals
“Perhaps the most important insight from monetary economics in the last 50 years is the proposition that a country with an independent central bank, shielded from political pressure, can achieve better economic performance…”
The evidence of the felon-in-chief’s policy choices is that better economic performance is not his goal. Policy decisions often resemble shakedowns: “Nice economy/university/city you got there. It’d be a shame if anything happened to it.”
Rent seeking, rather than growth, is the apparent goal. Rent-seeking and self-aggrandizement.