Here’s What Happened the Last Time a U.S. President Bullied the Fed Like Trump

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President Donald Trump this week ratcheted up his campaign to pressure the Federal Reserve into lowering interest rates, as the Department of Justice launched a criminal probe^[2] against recently fired governor Lisa Cook based on flimsy allegations of mortgage fraud. Earlier this week, Cook sued the administration to keep her job, making the timing of the DOJ action especially suspect.

The move is a chilling escalation of Trump’s weaponization of the DOJ against perceived political opponents. It’s also part of an obvious and long-standing effort to gain control of the Fed. Like the politicization of law enforcement, seizing power over the central bank is a power grab straight out of the authoritarian playbook, and one with predictable, ugly outcomes for America’s economy and democracy.

From the moment he took office, the president began waging a very public campaign to bend the Fed to his will. He threatened to fire Chairman Jerome Powell on Truth Social^[3], in the press^[4], and behind closed doors. He even threatened to sue. When these attacks didn’t bring Powell to heel, the president sicced his hunting hounds on the scent for a new mark, and Lisa Cook was the most convenient target.

Trump lunged at the faintest whiff of misconduct that could serve as the pretext to fire Cook and free up a seat at the Fed for one of his lapdogs. (Indeed, the allegations against Cook are just that—allegations—and in any event, they relate to conduct that predates her time on the Federal Reserve and that has no relationship to the performance of her duties.)

Trump has not been coy about his endgame in taking control of the Fed: He wants to impose lower interest rates by fiat and give the flagging economy a sugar high to boost his own political fortunes—without regard to the likely devastating long-term consequences of such short-term gains. Indeed, threatening the Federal Reserve with executive overreach risks cutting off his nose to spite his face.

Trump is hardly the first would-be dictator to target his country’s central bank, and the economic consequences are often disastrous. When Recep Tayyip Erdoğan tried to strong-arm Turkey’s central bank in 2008, the currency’s value plummeted 400 percent. One year earlier, when Hugo Chávez took over Venezuela’s central bank, inflation rose by 2 million percent. But we don’t have to look overseas to know that playing politics with the Fed will end badly for the U.S. economy—we have already tested it on our own soil.

Much of the global confidence in the American economy stems from the collective faith that no matter who sits in the Oval Office, there are limits to the president’s power that keep the U.S. economy on the rails and make America a fair place to invest and do business, regardless of who is in office. By law, the Federal Reserve operates independently of the executive branch. So does the Federal Deposit Insurance Corporation, or FDIC, which insures anyone with a U.S. bank account. As does the National Credit Union Administration, which insures local credit unions, and the Federal Trade Commission, which makes sure that the biggest corporations in the nation and the world play by the same rules as everyone else.

Congress specifically designed the Fed (like the FTC) to operate with independence, so that it can leverage its unique expertise to make decisions that are best for the long-term well-being of the American economy and the American people—not to score short-term political points for the primary benefit of a sitting president. In a 2010 speech, Federal Reserve Chairman Ben Bernanke explained^[5], “Policymakers in a central bank subject to short-term political influence may face pressures to overstimulate the economy to achieve short-term output. … Such gains may be popular at first, and thus helpful in an election campaign, but they are not sustainable and soon evaporate, leaving behind only inflationary pressures that worsen the economy’s longer-term prospects.”

That long-established independence—and the global confidence in our economy that comes with it—is in jeopardy under the Trump administration. Under federal law and Supreme Court precedent that has existed for nearly a century, the president cannot remove leaders of many independent agencies without legal cause. But that is exactly what Trump attempted to do when he attempted to fire my clients—FTC Commissioners Rebecca Kelly Slaughter and Alvaro M. Bedoya—in March, blocking them from their emails and from the building where they work, and placing their staff on indefinite administrative leave—and preventing them from engaging in their critical responsibilities to protect American consumers and small businesses. A federal district court ruled that Trump broke the law when he fired FTC Commissioners Slaughter and Bedoya without any justification, and the case is now on appeal, along with a number of other cases challenging the president’s unprecedented attempt to fire other independent commissioners without cause in direct violation of federal law.

What will happen if the Supreme Court obliterates a century of Supreme Court precedent and decides that Trump has carte blanche to remove the leaders of independent agencies, including at the Fed and FTC, at will?

History shows us that we should brace for chaos and market instability.

The last time a U.S. president subordinated the laws and norms that protect our economy to his own political ambitions, America faced the worst stagflation the country had ever seen. Federal Reserve historians refer to the period from 1971 to 1973 as some of “the worst in Federal Reserve history.”

In the run-up to the 1972 general election, President Richard Nixon exerted enormous pressure on Federal Reserve Chairman Arthur Burns to make monetary policies that were deleterious to the national economy but favorable to Nixon’s political prospects. The Federal Reserve’s loss of independence during this period contributed significantly to the economic period now known as the Great Inflation.

Like Trump^[7], Nixon dressed up his distaste for democratic norms in humor. At Burns’ swearing-in ceremony, Nixon joked^[8], “I respect his independence—however, I hope that, independently, he will consider that my views are the ones that should be followed.”

Similar to President Trump’s recent remarks^[9] pressuring Fed Chairman Jerome Powell, Nixon waged an unabashed pressure campaign to manipulate the Federal Reserve and expressed open frustration with Burns’ refusal to acquiesce. Transcripts from one particularly heated meeting in the Oval Office between the president and the Fed Chair reveal an exasperated Nixon shouting, “The whole point is, get it [the money supply] up. You know, fair enough? Kick it!”

When that didn’t work, the Nixon administration retaliated against Burns by strategically leaking stories to the press that disparaged Burns’ character and exploited his fear that the U.S. Treasury would attempt to take over the Federal Reserve. With striking similarity to Trump’s own pressure campaign against Powell and Cook, Nixon organized his allies on Wall Street to write letters to Burns to “urge a more expansive monetary policy” and “predict[ed] disaster” if the Federal Reserve did not increase the supply of money. The administration even planted a false story that Burns was requesting a pay raise when, in truth, he had asked for a pay cut. What the president could not squeeze from the Fed Chair in private, he would attempt to coerce from him in public.

These tactics deeply annoyed Burns, and they also created a no-win situation for him. In a private diary entry in November 1971, Burns wrote, “The President’s preoccupation with the election frightens me. Is there anything that he would not do to further his reelection?”

It was during this same period that the U.S. abolished the gold standard, which allowed the Federal Reserve to print more money than ever before. Despite the numerous macroeconomic indicators that inflation was rampant, the Federal Reserve did indeed continue printing money and anchored federal interest rates below 5 percent. Inflation ballooned, business investment stalled, and unemployment reached its highest levels since the Great Depression. Nixon got his victory in 1972, but Americans and the American economy would soon pay the steep price.

The paradox of this story is that Arthur Burns, the man history remembers as “America’s Inflation Villain^[10],” may deserve some credit for avoiding an even worse calamity. As Federal Reserve historian John Woolley writes in his book Monetary Politics, “During 1972, the [Fed] was keenly sensitive to dangers in its political environment, and [its] members were trying to anticipate those dangers rather than merely react to them.” It’s likely that what kept Burns up at night was not inflation (as bad as it was) but the credible fear that the Federal Reserve—and by extension the U.S. economy—was at risk of becoming a political instrument of the executive branch. In a 1976 commencement speech at Bryant College in Rhode Island, Burns said: “The founders of the Federal Reserve System were well aware of the dangers that would inhere in the creation of a monetary authority subservient to the executive branch of government—and thus subject to political manipulation.”

By no means should Burns be remembered as a hero. Obviously, the inflationary crisis of the 1970s occurred on his watch and he made serious errors of judgment during his tenure that gave the president leverage over the Fed.

But Burns’ actions appear far more logical when viewed with consideration for the possibility that what he feared most was not a personal falling-out with Nixon but the prospect of jeopardizing the integrity of the entire U.S. economy. He did not entirely cave to Nixon’s demands; nor did he raise interest rates or bring the U.S. Mint to a halt—actions that might have provoked an escalation from the president that would threaten the Fed’s independence. Unfortunately, Burns’s strategy of partial appeasement still spelled economic misfortune.

This cautionary tale bears a jarring resemblance to the economic situation America finds itself in today. Since Trump took office, job growth and GDP have stalled, while inflation is back on the rise. Desperate for the economic sugar high of lowered interest rates, Trump is attempting to bend the Fed to his will—most recently, by taking the unprecedented move of firing Fed governor Cook and threatening her with criminal action. In a speech at the Economic Club of Chicago on April 17, Powell said the Fed would hold a very high bar for interest rate cuts in light of Trump’s new tariffs. In response, Trump told reporters, “Powell’s termination cannot come fast enough!”

Our economy’s fate is now substantially in the hands of the American judicial system, in the form of multiple lawsuits against the Trump administration—by Cook herself as well as by illegally fired FTC commissioners and other independent regulators. The Supreme Court will soon be forced to decide whether it will preserve the separation of powers and defend the independence of economic regulators, or continue giving Trump additional king-like powers to consolidate power and destroy our independent institutions. Say what you will about Arthur Burns, but he had enough common sense not to give a pyromaniac a blowtorch. We have to hope the Supreme Court does, too.

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