The Federal Reserve is an agency of the Federal Government created by Congress under the 1933 Banking Act and revised in 1942. For last ninety years, the twelve members of the Federal Open Market Committee (FOMC) which is led by the current Chair has set monetary policy (interest rates) independent of influence by Congress or the President. All policy decisions on rate changes are made by consensus from the Chair and twelve members of the FOMC. Granted, members of the FED are called upon to appear before Congress and report on their activity, decisions and rational. The President has NO legal control over the actions of the FED. However, both past and present presidents have been on occasion frustrated by and tried to influence the FED and their decisions.
The FED’s job is to set the short-term interest rates on loans the FED makes to banks. The FED can also buy and sell government bonds to increase or decrease the amount of money in our economy. Simply stated, by lowering interest rates and buying bonds, it puts money into the economy which causes a stagnant economy to grow. A growing economy is always what we want, but if the FED rate is lowered too much or held there for too long, we end up with inflation. To slow the economy, the FED taps the breaks by raising the interest rates that banks are charged to borrow money. This effectively makes it more expensive to borrow money and the economy slows. Growth is good, but too much growth or too fast is a bad thing. A healthy and sustainable economy is when inflation is around 2 to 3%.
In 1965, in an effort to lower government borrowing costs to finance the Vietnam War, President Lyndon Johnson was reported to have held then FED Chair, William Martin, up against a wall to make his argument for reduced rates. This was Johnson’s method to get Martin to reduce interest rates. The result, Johnson did not get the rate cut he wanted because the FED felt that a rate cut would be bad for the economy.
President Nixon in 1972 both privately and publicly (but not violently) encouraged then FED Chair Arthur Burns to reduce interest rates to stimulate the economy prior to the next election. Burns gave Nixon what he wanted and reduced rates. The result was the surge of inflation that peaked at 15% in 1980. This is a great example of why Presidents should have no influence over the FED. Many people blame President Carter for the high inflation, granted he may have had a role, but the beginning of the high inflation came from Nixon.
President Carter nominated Paul Volker to be FED Chair in 1979, and he was approved by the Senate. To combat the rising inflation, Volker pushed short-term borrowing rates to 19% in 1979 and 20% in 1980. This dramatically cooled the economy, causing a recession. Newly elected President Reagan supported Federal Reserve Chairman Paul Volcker in his aggressive anti-inflationary policy understanding that a temporary recession (yet very painful recession) was necessary to break inflation allowing the Fed to raise rates to combat 1970s stagflation despite the resulting economic pain.
During the Financial Crisis of 2008, President George H.W. Bush supported the efforts of Treasury Secretary, Henry Paulson; FED Chair, Ben Bernanke; and President of the Federal Reserve Bank of New York, Tim Geithner. These three men guided Congress, the President and our economy through the greatest financial crisis since the Great Depression. As I like to say it, “the President knew what he didn’t know and got out of the way and allowed the experts to fix the problem.” This is only my opinion, but it worked.
An important reason to allow the FED to function independently from politics is to support the value or “strength” of the U.S. dollar. For the past 100 years, the U.S. dollar has been the world’s “reserve currency.” This means that most international transactions, both payment and borrowing, are done in U.S. dollars due to the leadership and stability of U.S. fiscal policy led by the independence of the Federal Reserve.
During the past twelve months, the value of the dollar declined by approximately 8% compared to most major currencies. This means it takes more U.S. dollars to buy foreign products and foreign buyers of U.S. debt will demand higher interest to offset potential future declines of the dollar. The uncertainty of trade policy, invasion of Valenzuela, discussion / actions surrounding Greenland, and the uncertainty on the independence of the FED are all factors affecting the value of the dollar.
President Trump nominated Jerome Powell to Federal Reserve Chair in 2018, and Powell began a second term in 2022. Since President Trump’s nomination in 2024 he has made multiple public calls for Powell to reduce rates more aggressively than the FED has deemed appropriate for the economy. During the past year, Trump has tried to force Powell to resign his seat as Chair prior to his term ending in May of 2026 (Powell then has two more years on his term as member of the FOMC). Currently, the Justice Department is launching a criminal inquiry of the current Federal Reserve Chair Jerome Powell.
Financial leaders around the world have rallied to criticize the attack on the independence on the FED and condemnation of the Justice Dept legal actions. Comments from JP Morgan CEO Jamie Diamond sums it up best: “JPMorgan CEO Jamie Dimon strongly defended Federal Reserve Chair Jerome Powell in January 2026, warning that political interference, particularly from President Trump's Justice Department probe into Powell, threatened FED independence and would likely backfire by increasing inflation and rates, despite disagreeing with some Fed decisions.”
Dimon emphasized the importance of an independent FED, saying that actions to undermine it will have "reverse consequences," a view shared by many Wall Street figures, while Trump countered that Dimon was wrong and that lower rates were needed.
Key Points of Dimon's Defense:
- Support for Fed Independence: Dimon stressed that chipping away at the Fed's autonomy is "not a great idea" and undermines financial stability.
- Warning Against Interference: He argued that political pressure on the FED could raise inflation expectations, contradicting goals for lower rates.
- Respect for Powell: While not agreeing with all Fed actions, Dimon expressed "enormous respect for Jay Powell the man," according to MSN.
- Context of DOJ Probe: Dimon's comments followed Powell's disclosure of a DOJ subpoena, which Powell linked to his monetary policy decisions, says Fox.
https://www.reuters.com/business/finance/jpmorgan-ceo-dimon-supportive-fed-independence-2026-01-13/
Now comes the hard question, “What should you do with your investments given all the uncertainty?”
First Action: Control what you can control. Then do your best not to become too stressed with everything else you have no control over.
To me this means, take control over how much cash you will want /need for the next few years. Put those funds you will need in a money market, CD, savings or some other guaranteed account. If you plan to spend money in another country, you may want to obtain that foreign currency now, if possible, to mitigate further declines in the dollar.
Second Action: Have a heart-to-heart conversation with your financial advisor. My suggestion for most people is that after you have secured spending money, allocate the remainder of you funds between stock (growth assets) and bonds (conservative assets) in a way that is consistent with your financial plan and your future needs during your lifetime. Don’t jump around. Investment decisions based upon current events or the fear of future events are generally bad decisions. Peter Lynch, legendary Fidelity Magellan portfolio manager, said it best: “Far more money has been lost by investors preparing for or trying to anticipate market corrections than in the corrections themselves," emphasizing that consistently trying to jump in and out (market timing) often causes investors to miss out on the best market days, significantly hurting long-term returns, and that psychological readiness for volatility is key, not prediction. He believed trying to time the market is a "total waste of time," and investors should instead focus on research and holding onto quality investments.
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