In Checks and Balances We Trust

While always present, the question of whether US economic institutions could withstand political pressure seemed relatively distant six months ago. Not that Trump hadn’t criticized the Fed in his first term or on the campaign trail, but markets leaned heavily on the TACO (Trump Always Chickens Out) coping mechanism that shaped much of the post-election narrative. Today, the politicization of traditionally independent or apolitical institutions has become as central an economic issue as trade policy.

President Trump has made no secret of his desire to fire Fed Chair Jerome Powell, remove Governor Lisa Cook and replace them with loyalists who will deliver lower interest rates and, perhaps, a weaker dollar. He has already nominated Stephen Miran to the Fed board. Miran has publicly argued that Trump’s supply-side agenda justified a reduced focus on upward inflation risks. Trump went further in August by firing the head of the Bureau of Labor Statistics (BLS) and replacing her with an ally.

The theme of institutional independence gained more traction this week after 600 economics scholars signed a letter External link. condemning some of these moves. On its own, this letter carries little weight. But when it lands in a week when markets are digesting multiple risks, including fiscal sustainability concerns in Europe, legal twists on tariffs and negative data surprises, it adds to the mood. The result was volatile trading, with gold emerging as one of the few clear winners.

When it comes to institutional independence, there are still guardrails. The Federal Reserve was built to weather political cycles. Governors serve staggered 14-year terms and can be removed only “for cause,” a phrase that has never been tested in court. Powell’s current term as chair expires in 2026, but his underlying governorship runs until 2028. If Trump tries to dismiss him prematurely, legal challenges would almost certainly follow and Powell could remain on the board even if stripped of the chairmanship. Similarly, while the BLS commissioner serves at the president’s pleasure, the agency is bound by statistical policy directives that fix the timing of releases, restrict pre-release access and safeguard methods. These rules make abject manipulation harder, slower and more visible. As one former commissioner noted, it would take “a whole new cadre” of staff and sweeping process changes to rig the data.

While these guardrails don’t necessarily guarantee stability, they still suggest that the immediate “Chinafication” of US institutions, where monetary policy is explicitly tied to the government’s broader agenda and where the data sits halfway between truth and propaganda, isn’t necessarily the baseline assumption to make at this point.

Even with a new chair, the addition of Stephen Miran to the board and Trump gaining the upper hand in the Lisa Cook case, influence would remain dispersed. There are twelve regional Fed presidents and several other board governors whose votes matter. To truly consolidate control, Trump would have to find a way to replace the regional presidents. Some have speculated that by ousting Cook and installing a loyalist, he could tilt the board majority toward allies, who in turn might refuse to grant the customary approval of regional presidents. That process comes up every five years, with the next cycle in February. Yet even in this far-fetched scenario, nothing would compel the regional reserve bank boards (composed of private sector and local representatives) to choose Trump loyalists. In any event, simply foraying in that direction would invite market backlash, and it's difficult to see how financial instability and runaway inflation would serve the administration’s interests heading into the mid-terms.

Similar nuances apply to the BLS. Data production relies on hundreds of statisticians and multiple cross-checks, making outright manipulation difficult. Where interference could surface is in the handling of revisions or methodological reviews or in the tone of official communication. Revisions were what triggered Trump in August. It’s conceivable that their release could be delayed or withheld under the pretext of a comprehensive methodological review. That would still be a long way from suppressing every adverse data point. Tellingly, a higher-than-expected producer price index and disappointing jobs reports were still released under the new commissioner.

In assessing politicization risks, it’s best to resist the instinct of leaping straight to the worst-case scenario and instead acknowledge a wide distribution of possible outcomes. The “soft” version of politicization would involve new appointees aligning with Trump’s preferences at the margin, but doing so with a veneer of competence and continuity to reassure investors. The “hard” version would involve direct control, doctored research and data, and a rapid loss of credibility. The former seems more likely in the near term, if only because the latter would carry such heavy costs. The bottom line is that the United States still has checks and balances. Many of these safeguards have never been tested, but that doesn’t mean they would fail to operate as intended if challenged.