An unprecedented public and political confrontation unfolded between the US Federal Reserve and President Donald Trump, symbolizing an extraordinary battle for control over the world’s largest economy. This remarkable tension was epitomized by a late July encounter at the Fed's Washington headquarters renovations, where Trump, in a rare visit, disputed the project's cost with a visibly perturbed Fed Chair Jerome Powell. Trump claimed the cost had risen to $3.1 billion from $2.7 billion, a figure Powell swiftly disavowed, stating he was "not aware of that, Mr President."

This public display marked a significant departure from decades of tradition where successive administrations allowed the Fed to function independently, without political interference. Trump, however, initiated a relentless critique of the country’s top monetary policymaker, a stance widely expected to intensify. Claudia Sahm, a former Fed economist, noted that while some battle lines were drawn, the full extent of this test of the central bank's independence had yet to play out.

Trump explicitly stated his desire to have a say in the Fed’s operations, asserting in August 2024, “I feel the president should at least have say in there. I feel that strongly.” He believed his own "better instinct" surpassed that of Federal Reserve officials. His primary focus was on pressuring the central bank to lower interest rates, particularly after his "Liberation Day" tariff announcement in April caused stock markets to plummet, leading him to rage against the Fed for insufficient action. He even publicly threatened Powell, declaring in mid-April, “If I want him out, he’ll be out there real fast, believe me,” though he later affirmed Powell’s job was safe. Throughout the summer, Trump continued his attacks, blasting "Too Late Powell" on social media and attempting to highlight the central bank’s renovations as a scandal.

The US economy experienced a turbulent year. Trump’s widespread tariffs and strict immigration policies destabilized prices and the labor market, which are the primary domains the Fed aims to protect and balance through interest rate adjustments. Earlier in the year, the Fed appeared to achieve a "soft landing," with inflation significantly reduced from its 2022 peak and the labor market remaining stable after interest rates increased from near zero to 5.25%-5.5%. Despite this, Wall Street remained anxious for rate reductions.

When earlier strategies failed to influence the Fed, the White House changed tactics. In August, Trump announced his intention to fire Lisa Cook, a Biden-appointed Fed governor and member of the rate-setting Federal Open Market Committee. Allegations of mortgage fraud, put forth by Trump ally Bill Pulte, claimed Cook had listed two homes as her primary residence. Cook, whose term extends until 2038, subsequently sued the White House to retain her role. The Supreme Court temporarily blocked her firing, with the case to be decided next year, centering on whether a president requires demonstrated “cause” to fire a Fed governor and if the fraud allegations were based on "cherrypicking" facts.

The Supreme Court had previously weighed in on the Fed’s unique structure in a separate ruling, describing it as a “uniquely structured, quasi-private entity.” This provided some hope for proponents of central banking independence, although the ultimate ruling on Cook’s case remained uncertain. Despite the ongoing "pressure campaign" and attempts to "test the defense," the Fed has remained stoic. Wall Street has maintained confidence in the Fed’s policymaking, which is crucial for market stability. Ryan Sweet, chief economist at Oxford Economics, noted that Trump’s attacks largely “fallen on deaf ears” regarding monetary policy decisions.

In the fall, the Fed began to lower rates, setting them in a range of 3.5% to 3.75%. However, Powell clarified that this move was driven by caution regarding risks in the labor market, reiterating in both October and December press conferences that there was “no risk-free path” for the central bank, not by political pressure. While White House pressure had softened in recent months, new projections from Fed officials indicated that most of the 12 voting members on the rate-setting committee did not anticipate significant rate changes in the coming year, despite Trump’s desire for rates to drop to 1%.

With Powell’s term as chair concluding in May 2026, Trump shifted his focus to selecting a replacement more aligned with his views, narrowing his choices to "Two Kevins": Kevin Warsh, a former Fed governor, and Kevin Hassett, director of the National Economic Council. Trump expressed that the next Fed chair should listen to the president, stating, “I don’t think he should do exactly what we say, but certainly we’re – I’m a smart voice and should be listened to.” While the chair holds only one vote among 12, the role carries significant influence as the public face of the Fed, setting its tone. Economists expressed mixed views on the impact of a new Trump-appointed chair, cautioning that any perceived cracks in the Fed’s independence could quickly spread, affecting market and inflation expectations in ways potentially counterproductive to the White House’s goals.