The Fed’s independence, inflation, and the labor market won’t be in jeopardy under Trump, says former Fed Vice Chair Randal Quarles

Former Fed Vice Chair Randal Quarles has dismissed concerns that the Federal Reserve’s independence will be at risk under President-elect Donald Trump. Speaking to Bloomberg Television during a forum, Quarles clarified misconceptions about the central bank’s autonomy.

Quarles stated there are several structural protections that prevent the president from exerting undue influence on the central bank. 

“There’s a fair bit of misunderstanding about what Fed independence is. Fed independence doesn’t mean that the president can’t express a view on Fed policy,” Quarles said. “The Fed can’t really be affected by the president’s bullying pulpit. Political pressure exists, but there aren’t political levers to compromise independence.”

These remarks come amid lingering concerns stemming from Trump’s sharp criticisms of Federal Reserve Chair Jerome Powell last year. Trump has also reiterated he will not reappoint Powell when his term ends in 2026.

Fed policy faces political pressure

During his campaign, Trump frequently criticized the Federal Reserve’s monetary policies, claiming that interest rates remain too high. At a press conference held at his Mar-a-Lago estate, Trump accused the outgoing administration of exacerbating economic difficulties.

“We are inheriting a difficult situation, and they’re trying to make it worse. Inflation is still raging, and interest rates are far too high,” Trump said.

The Federal Reserve reduced interest rates three times in 2024, marking a shift from its aggressive hikes in 2022 and 2023. The most recent cut occurred in September, bringing the federal funds rate to a range of 4.75%-5%. 

However, inflation data at the end of 2024 suggested that progress in curbing price increases had stalled, even as the labor market remained resilient.

The Federal Open Market Committee (FOMC), which sets monetary policy, is scheduled to meet at the end of January. This meeting will occur shortly after Trump takes office, adding to the political spotlight on the central bank’s decisions.

Quarles addressed other policy considerations under Trump’s incoming administration, including tariffs and deportations. While he acknowledged that tariffs can influence inflation, he downplayed their long-term impact. “Tariffs by themselves shouldn’t be inflationary, although at the margin, they could lead the Fed to lower rates,” he explained.

The former Fed Vice Chair also noted that material deportations, which Trump has indicated will be a priority, are unlikely to significantly affect the labor market.

Economic outlook and scares of inflation

Just a week away from Trump’s Inauguration, the Federal Reserve is facing heightened criticism, particularly regarding its strategy to tackle inflation and sustain the labor market. Federal Reserve officials have raised concerns about how the new administration’s policies might challenge the central bank’s commitment to its 2% inflation target.

During his first term, Trump often criticized Powell for resisting calls to cut interest rates. The president-elect’s public rebukes of the Fed chair broke with traditional norms of respecting the central bank’s independence. 

The 47th President of the US also suggested during the campaign that he should have a say in monetary policy, stating, “I made a lot of money, so I should have at least a say.”

Looking at the current market sentiment, investors have adjusted expectations for 2025, pricing in fewer interest rate cuts than initially anticipated. Moreover, stronger-than-expected December employment data led major banks, including Bank of America, Citigroup, and Goldman Sachs, to revise their forecasts. 

Money markets now anticipate only one rate cut in 2025, likely in October.

Quarles suggested that markets are now aligning more closely with the Fed’s likely actions. “Markets are pricing in Fed moves more accurately this year than last year,” he remarked.

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