Marketplace Can the president remove a Fed governor?
Aug 26, 2025
Sarah Binder, a Senior Fellow at the Brookings Institution and a political science professor at George Washington University, dives deep into the implications of President Trump’s efforts to remove a Federal Reserve governor. They explore the complexities of the Fed’s independence and the potential economic consequences of political interference. The discussion also touches on the Fed's role in the housing market and disaster preparedness, highlighting critical challenges in climate resilience and financial strategies to mitigate disasters.
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Fed Independence Shapes Long-Term Rates
- Political interference at the Fed can erode confidence that inflation will be managed by data, not politics.
- That loss of credibility can push long-term interest rates higher as investors demand inflation compensation.
Deficits Drive Long-Term Yields
- Beyond Fed independence, rising budget deficits are a primary driver of higher long-term interest rates.
- Investors demand higher yields when government debt levels suggest larger future inflation or default risk.
For-Cause Protection Limits Firings
- The Federal Reserve Act protects governors with for-cause removal to prevent purely political firings.
- Courts have cited terms like inefficiency, neglected duty, and malfeasance but left 'cause' somewhat vague.