U.S. President Donald Trump’s conflict with Federal Reserve Chairman Jerome Powell has become the focal point of global financial markets in 2025. As Trump aggressively advances trade negotiations and his agenda to bring manufacturing back to the U.S., large-scale tax cuts and fiscal stimulus plans by the federal government are putting pressure on inflation. Meanwhile, the Fed has maintained a high interest rate stance in the first half of the year, aiming to curb inflation and stabilize market expectations. However, this strategy is fundamentally at odds with Trump’s policy direction. Trump has accused the Fed of hindering the recovery of the real estate and manufacturing sectors, even calling Powell a “stubborn moron”. Powell, during a congressional hearing, has firmly reiterated the Fed’s anti-inflation stance, emphasizing that monetary policy must remain independent of political cycles and opposing the manipulation of interest rates for political gain. The rhetoric between the two has become increasingly heated, causing short-term market volatility, with the 10-year U.S. Treasury yield briefly spiking above 4.5%, and heightened fluctuations in the dollar exchange rate. Afterward, despite Powell attempting to ease tensions with more neutral language and signaling a “data-dependent” approach during the June FOMC meeting, Trump hinted at removing Powell from office early, raising concerns about the Fed’s independence.
Throughout the entire conflict, officials, scholars, and Wall Street have consistently sided with the Fed, emphasizing its independence, while overlooking the fact that even with its independent status, the Fed also has its own positions and demands. From a policy standpoint, as the central bank of the United States, the Fed’s monetary policy decisions should be based on economic data rather than political pressure. However, a deeper analysis of its personnel composition and historical behavior patterns reveals that this institution is not entirely neutral. In terms of political stance, data from the past 25 years shows that not a single economist at the Fed has ever voted for a Republican candidate, nor has anyone in its ranks made political donations to the Republican Party. This phenomenon is no accident but rather reflects the deep-rooted political leanings within the institution. Furthermore, examining the political donations of the Fed's 24,000 employees, 92% of the donations have gone to the Democratic Party. This overwhelming proportion far exceeds the partisan distribution of most government departments, clearly demonstrating the significant political preference within its employee base.
More importantly, by looking back at the Fed's century-long history, its policy focus has consistently revolved around the financial system and monetary markets, rather than employment or income growth for the general public. This was clearly reflected in a series of policy shifts by the Fed during the Great Depression in the U.S. from 1929 to 1939.
After the 1929 stock market crash, the Hoover administration initially adopted limited intervention measures. However, the Fed, concerned with maintaining the gold standard, failed to inject liquidity in a timely manner, instead keeping interest rates high. This led to a continued credit contraction and a wave of bank failures, ultimately escalating into the Great Depression. Due to the absence of a monetary easing policy, President Herbert Hoover was forced to stick to a balanced budget and laissez-faire approach in his fiscal policy execution. In particular, Hoover's passage of the Smoot-Hawley Tariff Act in 1930, which sought to protect domestic industries with tariff barriers, triggered retaliatory tariffs worldwide, further undermining exports and deepening the economic downturn. The Reconstruction Finance Corporation (RFC), established in 1932, attempted to inject funds into banks, but its limited scale failed to fundamentally reverse the situation.
With Franklin Roosevelt’s rise to power, his leadership of the New Deal initiated a series of systemic reforms. The first was the 1933 nationwide "bank holiday", which curtailed bank runs. Soon after, the Glass-Steagall Act established a clear separation between commercial and investment banking and created the FDIC, which helped restore public confidence.
The core issue was, of course, the gold standard. The U.S. began its substantial departure from the gold standard in 1933, abandoning its rigid commitment to gold, which allowed for greater flexibility in monetary policy. This, in turn, led to a moderate devaluation of the dollar, boosting exports and inflation expectations. This shift also created space for the birth of modern monetary policy. Subsequently, the 1935 Banking Act further strengthened the Fed’s centralized control over monetary policy, granting it more power to regulate interest rates and credit. On the fiscal side, the Roosevelt administration stimulated employment and consumption through large public works projects, such as the WPA and CCC, directly injecting funds into the real economy and effectively driving domestic demand. At the same time, the U.S. began establishing a securities regulatory framework, with the Securities Act and the Securities Exchange Act regulating the issuance and trading processes, and the creation of the Securities and Exchange Commission (SEC), which curbed financial speculation and restored market order.
In stark contrast to the active fiscal intervention and institutional reforms by the two U.S. administrations, the Fed during the Great Depression prioritized financial stability and the interests of the capital markets. Even in the face of challenges in the real economy, it persisted in adopting a series of contractionary monetary policies, attempting to tackle the increasingly inflated stock market bubble and excessive credit expansion. However, this cycle of interest rate hikes ultimately failed to achieve a soft landing and is widely regarded by historians as one of the key contributing factors to the 1929 stock market crash and the outbreak of the Great Depression.
Looking at the process of high interest rate implementation, starting in early 1928, the Fed began raising interest rates frequently out of concern that speculative activities might undermine financial stability. The discount rate, i.e., the interest rate at which the Fed lends to commercial banks for short-term loans, gradually increased from 3.5% at the start of the year, reaching a peak of 6% by August 1929, nearly doubling. At the same time, the Fed reduced the money supply through open market operations, creating a dual tightening effect. Under the gold standard at the time, this 2.5 percentage point increase in rates was considered to have a substantial tightening impact. The gold standard meant that money issuance was constrained by gold reserves, and monetary policy had to balance international capital flows and exchange rate stability. Within this framework, high interest rates not only squeezed domestic credit but also attracted international capital inflows, supporting the stability of the dollar-to-gold exchange rate. However, this further weakened the Fed’s ability to regulate the domestic economy. Corporate financing costs rose, consumer credit slowed, and investor sentiment gradually turned cautious. Ultimately, in October 1929, "Black Thursday" marked the beginning of the stock market crash, with the U.S. capital markets quickly shifting from boom to panic. The banking system came under pressure, and the real economy also began to decline.
Therefore, the Great Depression in the U.S. was largely related to the erroneous monetary policies implemented by the Fed. Although the market had already collapsed and triggered widespread financial panic, the central bank stubbornly refused to pivot to an easing stance. Between 1930 and 1931, amid successive bank failures and a severe liquidity shortage, it still maintained high interest rates and monetary tightening to uphold international financial stability under the gold standard. This policy choice effectively delivered another blow to the economy, exacerbating the situation. With credit channels blocked and a sharp decline in consumption and investment demand, the continued tightening policy accelerated the collapse of the banking system. Data shows that between 1930 and 1933, approximately 9,000 banks in the U.S. failed, and millions of depositors lost their savings, essentially destroying the financial trust mechanism. As the economy worsened, the Fed began lowering the discount rate between 1931 and 1932, bringing it down to around 2.5% to 3% by 1933. However, by this time, the banking system was severely damaged, and the rate cuts were futile.
As public dissatisfaction surged and trust in economic authorities sharply declined, it ultimately led to the resignation of then-Fed Chairman Roy A. Young and Eugene Meyer, both of whom failed to effectively contain the crisis. They became some of the most controversial leaders in the history of the Federal Reserve.
Roy A. Young assumed the role of Fed Chair in October 1927, during a period when the U.S. stock market speculation bubble was continuously expanding. To curb the irrational rise in asset prices, Young led the interest rate hike cycle from 1928 to 1929, raising the discount rate from 3.5% to 6%. Although the intent behind this measure was to limit speculation and maintain financial order, in the absence of accompanying financial regulations and market expectations management, it instead intensified liquidity strains and accelerated the stock market crash in October 1929. Afterward, the Fed failed to quickly provide liquidity support, leading to the spread of bank runs and the freezing of the credit system. Under public condemnation, Young resigned in August 1930, clearly in response to growing doubts about his competence amid the worsening economic conditions. He thus became the first person to bear the responsibility for the crisis.
After Young, Eugene Meyer took over the leadership of the Fed during a fully uncontrollable banking crisis and economic depression. However, like his predecessor, Meyer failed to break free from the policy constraints in time and did not decisively implement measures such as lowering interest rates, expanding the money supply, or acting as the "lender of last resort" by injecting sufficient liquidity into the banking system. Such contractionary policies resulted in the failure of many banks between 1930 and 1933, leading to a loss of confidence among depositors and a paralysis of the financial system. In hindsight, Meyer’s conservative policies were widely criticized, especially as the New Deal was about to take shape. He came to be seen as a representative of the old system, and he voluntarily resigned in May 1933, ending his own controversial tenure.
Noteworthily, although the gold standard has become history in the U.S., the Fed, which now holds the power over monetary policy, still faces the possibility of repeating past mistakes. ANBOUND’s founder Kung Chan believes that the Fed today is still deeply bound to the capital markets in terms of its fundamental functions. In particular, when it comes to policy considerations, the stability of the financial system and the smooth functioning of asset prices continue to take priority. It is no exaggeration to say that this policy inclination also reflects the Fed’s protection of the interests of large financial capital groups. Wall Street's continued high-level lobbying in the current political environment further confirms this. For example, JPMorgan CEO Jamie Dimon’s frequent meetings with Trump recently reflect the heightened sensitivity of financial capital to political forces that might reshape policy direction, with a clear aim to secure a favorable position in future policy distribution.
Chan also specifically pointed out that Powell, the current Fed Chair, to some extent, shares similar policy orientations and represents similar interests as his two predecessors. In his monetary policy decisions, Powell clearly listens more to the voices of large financial institutions on Wall Street, prioritizing the stability of financial markets, while giving insufficient attention to the needs of the real economy and the general public. His long-standing resistance to interest rate cuts also became a key trigger in the deterioration of relations between the Trump administration and the Federal Reserve. Trump’s "tariffs to promote manufacturing" policy essentially relies on a low-interest rate environment to support the domestic manufacturing cost advantage. If manufacturing returns but high interest rates and a strong dollar make U.S. products uncompetitive internationally, the so-called revival would lack sustainability, and the employment it creates would not be secure. Additionally, interest rate policy directly affects consumer spending and the wealth effect, with rate cuts boosting disposable income to some extent and stimulating domestic demand. Therefore, from Trump’s perspective, Powell’s disregard for the overall economic strategy in favor of protecting the financial elite’s interests is a deviation from the national economic goals.
All in all, the conflict between Trump and Powell is not simply a difference of opinion on monetary policy. It is, in essence, a clash between the national development strategy and the interests of financial capital. In this regard, the Fed’s independence cannot serve as a shield for its Chair. The force capable of shaking Powell’s and the Fed’s position is not Trump, but rather the political pressure stemming from public dissatisfaction with it and the establishment behind it. Chan believes that, similar to the situation during the Great Depression, when public dissatisfaction with the Fed’s monetary policy escalates and even leads to the belief that the Fed Chair should be held responsible for the economic downturn, Powell’s only option may be to follow in the footsteps of his predecessors and be forced to resign.
Final analysis conclusion:
Jerome Powell, the current Chair of the Federal Reserve, in his monetary policy decisions, clearly listens more to the voices of large financial institutions on Wall Street, prioritizing the stability of financial markets, while giving insufficient attention to the needs of the real economy and the general public. From Trump’s perspective, Powell’s disregard for the broader economic strategy, focusing only on safeguarding the interests of the financial elite, is a deviation from the nation’s economic goals. Therefore, the conflict between Trump and Powell should not be viewed merely as a difference in monetary policy, but as a concentrated manifestation of the clash between national development strategy and the interests of financial capital.
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Peng Maosheng is a researcher at ANBOUND, an independent think tank.
