Updated July 17, 2025 at 2:02 PM EDT
A former head of a Federal Reserve Bank says the Fed's independence from politics is "one of the foundational elements of a well-run economy."
"The benefits of independence stem from the fact that the Fed and monetary policy affects the economy with a lag. And so you want to insulate it from short-run political considerations," Loretta Mester, former president of the Federal Reserve Bank of Cleveland, told Morning Edition.
President Trump has floated the idea of firing Federal Reserve Chair Jerome Powell, who he's expressed frustration with for months for not lowering interest rates. Trump says Powell's refusal to lower the rates is hurting the economy.
The Fed has been wary of lowering interest rates as it assesses the impact of Trump's tariffs on inflation. Consumer prices are up 2.7% compared to a year ago, which is a larger annual increase than the month before.
If Trump were to fire Powell, that could undermine the Federal Reserve's independence.
Powell has said previously that Trump cannot lawfully fire him before his term ends in May 2026.
NPR's Steve Inskeep spoke with Mester, now a finance professor at the University of Pennsylvania's Wharton School, about what the Fed does and why its independence is fundamental to the U.S. economy.
The following interview has been edited for length and clarity.
Interview Highlights
Steve Inskeep: Why would the markets want an independent Federal Reserve?
Loretta Mester: Well, independence is one of the foundational elements of a well-run economy. The benefits of independence stem from the fact that the Fed and monetary policy affects the economy with a lag. And so you want to insulate it from short-run political considerations. And that's kind of the system that we've had since the early '50s. Monetary policymakers focus on hitting the dual mandate goals that Congress gave it, which are price stability and maximum employment. And they steer away from commenting on fiscal policy. And then the fiscal policy makers, including the president, try to steer away from commenting on monetary policy. And that's good because you don't want the person who's setting interest rates to be concerned about trying to inflate away the debt, which maybe a politician has in mind, or setting interest rates low to gin up the economy before an election without consideration of what the long run implications for inflation are. So you want to separate those two duties, and that's the system that we've had in the U.S.
Inskeep: Let me put in front of you, though, the Trump administration's broad argument, not just about the Federal Reserve, but about every corner of the executive branch, every corner of the U.S. government, [and] every dollar the government spends somewhere. Their argument is that when someone like Jerome Powell says, 'I know best and I have this independent position,' they're trying to be independent of the people who elected the president and that that's not small 'd' democratic. Do you see it that way at all?
Mester: I do not, because this is how Congress designed the Fed.
Inskeep: Oh! And Congress was elected. Thanks for the reminder.
Mester: Yes. They set the goals and then they've given over to the experts, monetary policy makers, the ability to use their best judgment to set policy to meet those goals. Being independent in setting monetary policy does not mean the central bank is unaccountable for its decisions. And Jerome Powell and the other Fed chairs have always gone to Congress and reported on their policy decisions. The rationale. Chair Powell does news conferences after each decision to explain to the public why the Fed made the decision it made, what the goals are, how they're meeting the goals. So there's accountability there. But you really want to insulate the Fed and those monetary policy decisions from those short run considerations a politician may have.
Inskeep: I just want to note that you served in a time when there were three different presidents Barack Obama, Donald Trump the first time, and also Joe Biden. While Trump has been unusually loud about the Fed chairman, it's been thought that presidents from time to time have had strong opinions about this and sometimes try to convey it. Did you ever feel the pressure of a president during your decade inside the Fed?
Mester: I honestly never had politics put in my view of what we would do at monetary policy. When you come into that room, you set all those outside things aside and you really focus on the best analysis that you can bring to bear on where the economy's going and how to best place monetary policy to foster maximum employment and price stability. And so at that table, at the FOMC (Federal Open Market Committee) table, politics never enter into the consideration. And I've been going to FOMC meetings since Greenspan, so a long time. And politics never entered that room.
The digital piece was edited by Lisa Thomson.
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