It started, as many modern political storms do, with a social media post.

On Truth Social, U.S. President Donald Trump publicly scolded Federal Reserve chair Jerome Powell, insisting that the next Fed chair must be someone who will "lower interest rates if the market is doing well.” Anyone who disagrees, he warned, "will never be the Fed chairman.”

Why then was the Fed designed to ignore presidents?

Presidents live in election cycles and another election is always just around the corner. Growth feels good, voters are happy and nobody likes to be told the economy needs to slow down. An independent central bank acts as the "adult in the room," willing to raise interest rates to curb inflation, even if it makes the president or the public unhappy. That is why the Fed was made independent.

The most important protection is instrument independence, which is the authority to set interest rates without taking orders from the White House. A president may complain, tweet or apply pressure. But legally, he cannot command.

Fed governors serve 14-year terms, staggered so no president can dominate the board. A Fed chair cannot be fired for disagreeing with the president. He can be only for corruption or gross misconduct. Seen in that light, recent scrutiny of the Fed’s headquarters renovation takes on greater significance. To critics, it looks less like a budgeting dispute than a search for a legal lever, some way to remove a chair who refuses to bend.

Without its independence, interest rates would become a political tool. If politicians would almost always choose growth today over stability tomorrow. And ordinary life would become far more expensive, very quickly.

Powerful but not free

Still, the Fed does not choose its own mission. Congress assigned it two goals: maximum employment and stable prices. The tension between them is unavoidable. Fight inflation too aggressively and jobs vanish. Push growth too hard and prices surge. Every interest-rate decision is a trade-off and someone is always unhappy.

To anchor expectations, the Fed defines price stability as 2% inflation. Employment, by contrast, has no fixed target. It shifts with demographics, technology and the structure of the economy, making it harder to judge when the job market is truly "tight” or merely resilient.

On inflation, however, the signal is clearer. Consumer prices were up 2.7% year-over-year in December 2025 and have remained above 2% for much of the past year. That persistence is enough to keep the Fed cautious even while Trump calls for lower rates to juice growth.

Why inflation won’t go away

When the economy feels tight, someone must be blamed. And the Fed, with its closed-door meetings and opaque language, makes an easy villain. But the real problem sits outside the Fed’s control. Several Trump-era policies have contributed to structural inflation pressures.

Trade policy is one factor. Since "Liberation Day,” effective tariff rates have climbed to nearly 16%, the highest since the 1930s. For households, this acts like a hidden tax – about $1,500 a year – reducing how much people can spend on other things. Businesses initially absorbed much of the costs in 2025 by using old inventory, but that inventory has run out. In 2026, those costs will be passed to the customer. This is why inflation is "stuck."

Trade friction with China, and even with allies like India, over Russian oil, has made global supply chains unpredictable and fragile. That uncertainty shows up in prices.

Labor shortages compound the problem. Restrictive immigration policies led to negative net migration in 2025 for the first time in decades. Construction sites, farms and hotels simply cannot find enough people.

Nor has this shift delivered the promised gains for U.S.-born workers. In some sectors, unemployment among native-born workers rose to 4.1%, as firms unable to find specialised staff scaled back operations, cancelled expansion plans and froze hiring altogether.

Quietly hurting everyday life

Lower interest rates promise relief: cheaper mortgages, easier credit and a sense that help is on the way. But when inflation is unresolved, that relief boomerangs back as higher prices.

Raises come once a year, if at all. Prices, by contrast, adjust immediately. Worse, most American workers do not have strong bargaining power anymore. Only about 10% belong to unions. Faced with shrinking real wages, workers do the only thing left: they quit.

But high turnover is expensive. It costs up to half a worker’s annual salary to hire and train a replacement. New hires take months to reach full effectiveness. In a tight labour market, even supposedly "cheap” junior workers become expensive to hire.

When senior employees leave, they take their specialized knowledge with them that cannot be quickly replaced. To stop senior staff from walking out, companies hand out "loyalty raises,” then raise prices to protect margins.

Households get squeezed twice by rising prices and by job instability.

Solutions no one talks about

The Fed has one tool, and it’s already using it. Governments, however, have many tools: Immigration reform to fix labor shortages; education and training to boost productivity; housing and zoning reform to lower living costs; and infrastructure and energy policy to ease supply bottlenecks.

These are slow, unglamorous policies. They do not fit neatly into campaign slogans. They take years to deliver results. But unlike pressure on interest rates, they address the causes of the problem rather than its symptoms.

The Federal Reserve does not just set interest rates for Americans. Its credibility shapes how global investors price U.S. assets and how cheaply the government, businesses and households can borrow.

That credibility rests on a simple belief: that the Fed will protect the value of money even when doing so is politically inconvenient. If markets begin to suspect that interest-rate decisions are driven by presidential pressure rather than economic conditions, that belief weakens. Investors demand higher returns to compensate for the risk. Borrowing becomes more expensive, not just abroad, but at home.

Once credibility is damaged, restoring it is neither quick nor cheap. This fight between Trump and Powell is a test of whether short-term politics will override long-term stability.