What does “independence” mean?
The Federal Reserve was created by an act of Congress in 1913 and, since 1977, has been charged with promoting maximum employment and stable prices. In practice, independence means that the Fed can set interest rates without interference from Congress or the White House even if politicians are unhappy with Fed policy—and say so publicly.
Congress could, of course, change the law, but no bill to alter the Fed’s mandate or governance has gone very far. That’s because members of Congress generally recognize that if they or the president were able to directly influence the setting of interest rates, higher inflation would be the likely outcome.
Central banks in nearly all major capitalist democracies are similarly insulated: Elected governments set the central bank’s mandate, but the central banks have the freedom to deploy their tools (primarily interest rates) to achieve that mandate. The rationale is that elected politicians will tend to favor lower interest rates now to boost the economy, but this comes at the expense of more inflation later, and that’s not in the best interests of the overall economy. Independent central bankers, the argument goes, can make unpopular decisions, such as raising interest rates, when circumstances demand. Academic research supports the case that economies with independent central banks tend to have lower—and less volatile—inflation rates.
Here’s how Fed Chair Ben Bernanke, now at Brookings, put it in a 2010 speech: “Policymakers in a central bank subject to short-term political influence may face pressures to overstimulate the economy to achieve short-term output and employment gains that exceed the economy’s underlying potential. 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. Thus, political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation…”
“To be clear,” he added, “I am by no means advocating unconditional independence for central banks. First, for its policy independence to be democratically legitimate, the central bank must be accountable to the public for its actions … [T]he goals of policy should be set by the government, not by the central bank itself; and the central bank must regularly demonstrate that it is appropriately pursuing its mandated goals. Demonstrating its fidelity to its mandate in turn requires that the central bank be transparent about its economic outlook and policy strategy.”
A president can influence Fed policy mainly through his nomination of members of the Federal Reserve Board, subject to confirmation by the Senate. Jay Powell’s term as Fed chair expires in May 2026, but he could remain a member of the Board until January 2028. There is precedent for this: Marriner Eccles was replaced as Fed chair in 1948 by President Truman, but he continued to serve as a Fed governor until 1951. For more on the terms of Fed officials, read this Hutchins Center explainer.
The Federal Reserve Act says that Fed governors can be removed by the president before the expiration of their terms only “for cause.” In a 1935 case (Humphrey’s Executor v. United States), the Supreme Court ruled that President Franklin Delano Roosevelt could not fire a member of the Federal Trade Commission due to policy disagreements, because the law said commissioners could be removed only for “inefficiency, neglect of duty, or malfeasance in office.” (FDR said FTC’s work could be “carried out most effectively with personnel of my own selection.”) The Supreme Court has distinguished between agencies, such as the Fed, that are overseen by multi-member boards, and those run by a single individual. In the latter, such as the Consumer Financial Protection Bureau, the court has said the president does have the power to fire the director before his or her term expires.
Powell has said that it is “not permitted under law” for the president to fire him and that he will not resign if Trump asks him to do so. President Trump has said that he doesn’t plan to fire him. But the Fed’s vice chair for (bank) supervision, Michael Barr, resigned that post, to avoid a legal showdown over whether the president could fire him. Barr remains a member of the Board.
Trump has tried to fire Fed Governor Lisa Cook, arguing that her alleged mortgage fraud is sufficient cause. She has not been formally charged with any wrongdoing and denies any. Federal courts, including the Supreme Court, have allowed her to remain on the Board while the dispute is pending. Former Fed chairs Ben Bernanke, Alan Greenspan, and Janet Yellen, along with other former economic policy officials from Republican and Democratic administrations, advised the Supreme Court in an amicus brief that removing Cook from the Board immediately “would expose the Federal Reserve to political influences, thereby eroding public confidence in the Fed’s independence and jeopardizing the credibility and efficacy of U.S. monetary policy.”
In March 2025, a federal judge, citing Humphrey’s Executor, ruled that Trump could not legally fire Gwynne Wilcox as a member of the National Labor Relations Board because the law says the president can remove an NLRB member “upon notice and hearing, for neglect of duty or malfeasance in office, but for no other cause.” The Trump administration appealed to the Supreme Court. The Trump Justice Department has said that “for-cause removal provisions that apply to members of multi-member regulatory commissions are unconstitutional.” Added Solicitor General D. John Sauer: “The president should not be forced to delegate his executive power to agency heads who are demonstrably at odds with the administration’s policy objectives for a single day—much less for the months that it would likely take for the courts to resolve this litigation.”
Supreme Court Justice Samuel Alito, in a footnote in a 2024 decision involving the financing of the Consumer Financial Protection Bureau, described the Federal Reserve Board as “a unique institution with a unique historical background … a special arrangement sanctioned by history.” That suggests he is likely to side with the Fed should its independence or governance be challenged.
In a May 2025 order involving the president’s power to fire members of the National Labor Relations Board and the Merit Systems Protection Board, the Supreme Court echoed the Alito view that the Fed is different and reinforced expectations that that the president cannot fire Fed board members. “The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct history tradition of the First and Second Banks of the United States,” the court said.
What about the presidents of the 12 Federal Reserve Banks?
Each of the 12 Federal Reserve banks has a nine-member, private-sector board of directors which appoints its president, subject to approval of the Federal Reserve Board in Washington. The presidents are appointed for a term of five years, all of which expire on the last day of February in years ending in 1 and 6 (that is, in 2026 and 2031). In December 2025, the Board renewed their terms through 2031.
At any one time, five of the 12 presidents serve alongside the seven Fed governors in Washington on the Federal Open Market Committee (FOMC), which sets interest rates. In the 1980s, Sen. John Melcher (D-Mont.) challenged this in federal court, arguing that because the five presidents are “officers” of the United States, they must be appointed by the president and confirmed by the Senate. In 1987, a federal appeals court rejected that argument, reasoning that Congress could change the law if it didn’t like it. The senator appealed. The Supreme Court didn’t take the case.
A 2019 opinion by the Justice Department’s Office of Legal Counsel said that the Reserve Bank presidents are “inferior officers” under the constitution and therefore are subject to “plenary removal” by the Fed Board of Governors in Washington. The Board, however, has never fired any of the presidents, nor has this opinion ever been tested in litigation.
What are the legal constraints on the Fed’s ability to buy securities and lend money?
The Federal Reserve Act says the Fed can (and does) buy and sell U.S. government securities and mortgage-backed securities guaranteed by the federal government, as well as municipal bonds with a maturity of up to six months. Under Section 13(3) of the Federal Reserve Act, the Fed has emergency lending authority which it can invoke only with the approval of the Secretary of the Treasury. The Fed used this authority extensively during the COVID-19 pandemic, offering loans to municipalities and corporations, among other things. (For details, see this Hutchins Center explainer.)
A major function of the Fed and other central banks is to lend to solvent banks when they need cash to meet depositors’ demands, provided the banks are solvent and can post collateral. These loans, by law, must be “secured to the satisfaction” of the Reserve Bank in whose district the borrower is headquartered.
What about bank regulation?
The Fed is less independent in its role overseeing the safety and soundness of banks and other financial institutions than in monetary policy. It directly supervises and regulates nearly 3,800 bank holding companies, 700 state-chartered banks, and several financial market utilities, such as the Clearing House Payments Company, which operates a bank-to-bank payments system. The Fed shares some of these responsibilities with other federal agencies, including the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC).
Some Fed regulations on banking can be overturned by Congress under the Congressional Review Act. The act, however, specifically exempts Fed “rules that concern monetary policy.”
In February 2025, Trump signed an executive order that, among other things, said that the White House Office of Management and Budget (OMB) shall “review independent regulatory agencies’ obligations for consistency with the President’s policies and priorities.” The order explicitly excluded the Fed “in its conduct of monetary authority,” but said it applies to the Fed’s “supervision and regulation of financial institutions.”
The executive order also said that OMB can adjust agencies’ “apportionments” to prohibit them from “expending appropriations on particular activities, functions, projects, or objects, so long as such restrictions are consistent with law.” (In OMB parlance, “apportionment” is a legally binding, OMB-approved “plan to use budgetary resources” consistent with congressional appropriations.)
It is not clear if or how that applies to the Fed’s supervisory and regulatory operations. In contrast to most other arms of the federal government, Congress does not decide how much the Fed spends on its operations. The Fed’s income comes primarily from the interest it earns on government securities it buys in the secondary market and, when its revenue exceeds its expenses, it turns the surplus over to the Treasury.
