The Myth of a Neutral Fed is Over

“What you call the fiction of independence really has acquired a huge global meaning. And…in the increasing polarization of American politics, it’s going to be harder and harder to maintain that.”

Economic Historian Adam Tooze’s words in a recent episode of Ones and Tooze cut straight to the heart of the Federal Reserve’s current predicament. Independence has always been more fragile than central bankers liked to admit. Nixon harangued his Fed chair; Johnson leaned hard; even Clinton and Obama, though more restrained, did not treat the Fed as untouchable. But Trump’s approach is of another order: public, relentless, and fused with a broader Republican project to “stack” the Fed both nationally and regionally.

The aim is not just lower interest rates—though Trump has made no secret of his desire to juice the economy—but a much more ambitious extension of presidential power. As Tooze and Cameron Abadi noted, the GOP is now openly attempting to assert partisan control over the apparatus of money creation and financial regulation. That, in Tooze’s words, makes this “an existential challenge” to the very idea of an independent central bank.

Trumps allies fear the Fed is run by the liberal establishment

This confrontation is sharpened by the electoral cycle. Trump’s allies fear that if a recession hits in the coming year, the Fed—staffed by figures they regard as part of a liberal establishment—will stand aside rather than act decisively to rescue the economy. The suspicion is that Fed officials would see it as their institutional duty to minimize Trump’s re-election chances by letting downturn risks play out. It is an extraordinary charge, but it reflects a deep distrust: the belief that the Fed is not merely technocratic but stacked with elites whose political sympathies lie firmly on the other side.

That sense of distrust feeds the urgency behind efforts to bring the Fed under partisan control. It is not entirely unfounded. During Trump’s first term, senior Fed figures made remarks suggesting that if the president himself was a source of instability, then their overriding duty as guardians of stability was to act in ways that might limit his prospects for re‑election. One striking example came from William Dudley, the former president of the New York Fed, who in an August 2019 Bloomberg op‑ed argued that Trump’s re‑election itself could pose a threat to the U.S. and global economy and that Fed officials should consider how their decisions might shape the political outcome.

Although quickly disavowed by the Fed’s leadership, Dudley’s words offered rare confirmation of Tooze’s claim. Such comments, rare though they were, reinforced the impression that the central bank was not impartial but inclined toward defending an establishment consensus against Trump’s agenda. For Trump’s circle, this is not simply about rates or growth but about ensuring the central bank does not act as a hidden veto player against their project of political dominance. It is the mirror image of the longstanding fear on the left—that central banks have always served as the “wall of gold” blocking radical governments from exercising real power.

What makes the silence of central bankers at their recent Jackson Hole gathering so striking is that everyone could see what was coming, yet no one dared say it aloud. The Fed has always been a political institution, shaped by presidents, Congress, and public moods. But the fiction of neutrality—the idea that monetary policy could somehow be above politics—gave it credibility at home and authority abroad. If that fiction collapses, what replaces it?

Stability of Bond Market owes to the efficiency with which Scott Bessent and his team have managed Treasury liquidity

Adding to the drama is the surprising calm of financial markets. For decades, the specter of bond market panic was invoked as the ultimate deterrent to political interference with the Fed. Yet, as Tooze notes, “look what’s happened. Zip, nada, crickets, nothing.” The bond markets have not flinched. Much of this stability owes to the efficiency with which Scott Bessent and his team have managed Treasury liquidity. For all his bluster, Trump has surrounded himself with operators who understand market plumbing well enough to keep the system steady even while shaking its institutional foundations.

The uncomfortable reality, as Tooze reminds us, is that the Fed resembles the Supreme Court more than it resembles a neutral technocracy. It may be institutionally distinct from Congress or the White House, but it is not—and never has been—apolitical. The struggle over its future is really a struggle over whether America’s central bank will remain an autonomous guardian of monetary stability, or whether it will be bent, quite openly, to the will of partisan politics.

Everything is political, even the Fed.