LEILA FADEL, HOST:
President Trump is trying to pressure the Federal Reserve to lower interest rates, which it's reluctant to do because of tariffs. And after Fed Chair Jerome Powell warned that Trump's tariff policies could make it harder to limit inflation, the president posted on social media yesterday that Powell's termination, quote, "cannot come fast enough." To talk this through, we're joined by Peter Conti-Brown. He's a financial historian and associate professor at the University of Pennsylvania's Wharton School. Peter, welcome to the program. Good morning.
PETER CONTI-BROWN: Good morning. Thanks for having me.
FADEL: So does the president have the legal authority to fire Powell before his term expires in May of next year?
CONTI-BROWN: You know, last time we had almost exactly this conversation the first Trump administration, the answer was much clearer that the president did not. But in the last few months in the second Trump administration, the president has made an assault on the independence of administrative agencies a keystone of his legal strategy. And those very questions, which are currently being litigated, could determine the answer to that question. It's much more uncertain today than it was in, say, 2018.
FADEL: What makes it more uncertain? I mean, Trump has fired, as you point out, members of independent agencies since taking office, and the Supreme Court sided with him in a case related to two of those firings earlier this month. Is that what is making this moment uncertain?
CONTI-BROWN: That's the big part of it. The Supreme Court and the Trump administration itself have said, kind of hinted, that the Fed might be different. But as I sit here today as both a historian and as a legal scholar, I read the statutes, and they have exactly, nearly word for word, the same protections at the Federal Trade Commission, for example, as the Federal Reserve. So if those protections go away because the Supreme Court writes them away, then the independence of the Federal Reserve is much more fragile than it was before.
FADEL: Why is the Fed's independence important, and is Trump's attempt to pressure its actions unique to a president?
CONTI-BROWN: The independence of the Federal Reserve stands for the idea that all politicians are going to want to goose the economy in the short term because that makes their voters and their constituents happy. And that's a bipartisan enthusiasm. In that sense, President Trump is not unique. Nearly every president has wanted the Fed to be more accommodating to their policies. But we don't want a short-term sugar rush of stimulus in the economy. And so Congress designed the central bank to have its eye on the long-term ball. We want stability. We want growth without inflation. And so the independence of the Federal Reserve is to create that kind of scenario. What's unique about President Trump is his wide assertions to delegitimize that very independence. And that's the thing, as I sit here today, that I fear the most.
FADEL: You say you fear that. What happens if it comes to fruition?
CONTI-BROWN: If people don't trust the Federal Reserve to keep their eye on that long-term ball, if they believe President Trump that it's just political hacks operating monetary policy and doing so incompetently, then their ability to plan, to trust in these institutions, to put their confidence in the economy for the future will upend everything about - that we understand about economic growth and about where we're going as an economy.
FADEL: Yesterday, Politico reported that Treasury Secretary Scott Bessent had - has warned the White House that firing Powell could destabilize financial markets. Is he correct?
CONTI-BROWN: He's absolutely right. The destabilization we've seen in the bond markets, for example, in reaction to the tariff policy, would be like a child's soccer game compared to the World Cup of destabilization if we lose Fed independence. Fed independence is the bulwark of stability for the bond market, for our capital markets, for the U.S. dollar. If that goes away, well, we know this story. We've seen economies like this in Turkey and Lebanon and Venezuela and so many other places. The Fed - and the Fed's independence keeps us from that chaos.
FADEL: I mean, you're describing economies that have failed, that have tanked. I mean, is that possible in the U.S.?
CONTI-BROWN: It - that is not something that I would have said yes to even many months ago, but I would say that it is possible today, yes.
FADEL: Trump allies argue that the president should have more authority over independent agencies. They exist under the executive branch. What are your thoughts on that argument?
CONTI-BROWN: I think the idea of independence is a bit of a red herring. The Federal Reserve is not independent. It's insulated. The president has enormous power to influence the direction of the Fed, and that comes when Jay Powell's term ends, one year from now, and he gets to select the next Fed chair. But it shouldn't come before.
FADEL: Peter Conti-Brown is a financial historian at the University of Pennsylvania's Wharton School. Thank you so much for your time.
CONTI-BROWN: Thank you. Transcript provided by NPR, Copyright NPR.
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