How Trump's return to White House threatens US Fed's independence?

United States' President-elect Donald Trump is set to return to the White House and while he is celebrating his electoral win, the US Federal Reserve may not feel as ecstatic as him because of the threat his presidency poses to the department.

According to AFP, Trump's return to the White House raises concerns about the Fed's ability to combat inflation and unemployment without political pressure.

But why is that?

The Fed holds a dual mandate from Congress to manage these economic challenges primarily through interest rate adjustments. Any perceived threat to its autonomy could unsettle financial markets, leading traders to question the Fed's capacity to effectively address inflation while fulfilling its critical role in the economy.

"The prevailing view for the past 30 years, with the exception of the first Trump administration, has been that it's best to give the Fed the widest possible latitude to conduct monetary policy," David Wilcox, a senior fellow at the Peterson Institute for International Economics (PIIE), told AFP.

"Monetary policy is complicated enough even without having to take that additional consideration," added Wilcox, a former senior advisor to three Fed chairs who is also Bloomberg's director of US economic research.

The Federal Reserve System includes a decentralised network of 12 regional reserve banks and a seven-member Board of Governors in Washington.

Fed governors are nominated by the US president to serve staggered 14-year terms, and must be confirmed by the Senate.

The Fed chair and vice chairs are appointed from among these seven governors and, once appointed, cannot be removed without cause.

The Fed Board of Governors also plays a role in approving nominations to run the 12 regional reserve banks.

However, those nominations are made by the regional reserve banks' own directors, adding a layer of protection against too much meddling from the center.

Where a future President Trump can — and very likely will — have a significant influence over the Fed is in his choice of nominations.

Jerome Powell is scheduled to step down as Fed Chair in May 2026, and Trump is not expected to renominate him.

The president-elect is a fierce critic of Powell — whom he first nominated to run the US central bank — accusing him without evidence of supporting the Democrats, and once even questioning if he was a bigger enemy than Chinese President Xi Jinping.

The president-elect has also said he has "better instincts" on the economy than many Fed governors, and argued that the US president should have "at least" a say setting interest rates.

But once Powell steps down as Fed Chair, he will remain a governor until 2028, should he choose to stay on, complicating Trump's nomination process.

To replace him with someone not currently on the board, Trump must either pressure an existing governor to quit, or replace Fed governor Adriana Kugler when her term expires in January 2026, and then nominate her replacement to the top job.