Why US Federal Reserve drama keeps dominating headlines

News from the United States Federal Reserve System—commonly known as the Federal Reserve or simply the Fed—typically attracts attention mainly from financial outlets, but in recent weeks, the institution has dominated global headlines everywhere. The reason isn’t its monetary or fiscal policies, but rather the escalating clash with US President Donald Trump. The president has repeatedly criticized Fed Chair Jerome Powell for refusing to cut short-term interest rates and even threatened to fire him.

Trump’s frustration stems from Powell’s cautious stance. The president has urged the Fed to lower borrowing costs to stimulate the economy and reduce the federal government’s interest payments on debt. He has also accused Powell of mishandling the central bank’s $2.5 billion building renovation project.

Powell, however, has argued that the Fed needs to assess how the economy responds to Trump’s sweeping import tariffs, which he says could fuel inflation. Removing the Fed chair—or forcing out a governor—would jeopardize the institution’s cherished independence, long considered vital by economists and Wall Street investors. The NBC network has highlighted why the Fed’s autonomy from the White House matters.

The Fed exerts enormous influence over the US economy. By lowering its key short-term interest rate—typically a response to economic weakness—it makes borrowing cheaper, spurring spending and job growth. Conversely, raising rates—often to rein in inflation—slows economic activity and can lead to job losses.

Economists favour central bank independence because it allows policymakers to take unpopular steps, such as hiking rates to curb inflation, even when it makes mortgages, car loans, and other credit more expensive.

According to their article, this principle was reinforced after the runaway inflation of the 1970s and early 1980s. Former Fed Chair Arthur Burns is widely blamed for letting inflation spiral by yielding to President Richard Nixon’s pressure to keep rates low ahead of the 1972 election—an election Nixon went on to win in a landslide.

To correct course, President Jimmy Carter appointed Paul Volcker as Fed Chair in 1979. Volcker raised the Fed’s short-term rate to nearly 20%—a stark contrast to today’s 4.3%. The move triggered a deep recession, pushed unemployment to nearly 11%, and sparked widespread protests.

As NBC points out, Volcker stood firm and by the mid-1980s, inflation had plunged to low single digits. His resolve to impose economic pain to tame inflation is widely seen as a defining case for why an independent Fed matters.

Anxious markets watch the Fed’s next move

Attempting to fire Powell would almost certainly rattle markets, sending stock prices down and bond yields soaring—raising borrowing costs for mortgages, auto loans, credit cards, and government debt. The 10-year Treasury yield, a benchmark for mortgage rates, would likely spike.

Investors overwhelmingly prefer an independent Fed because it generally controls inflation better and operates predictably without political interference. As NBC puts it, Fed officials frequently signal how they might adjust rates as economic conditions evolve.

If political pressure dictated Fed policy, markets would struggle to anticipate or interpret its moves.

Fed chairs like Powell serve four-year terms after presidential nomination and Senate confirmation. The president also appoints six other governors for staggered terms of up to 14 years. Over time, these appointments can reshape policy. Trump can replace Powell in May 2026, when his term ends. Still, the Fed’s interest-rate decisions rest with 12 voting members, meaning that even a new chair cannot guarantee a policy shift to suit a president’s agenda.

By Nazrin Sadigova