• Trump allies are advocating for a more activist Federal Reserve, including potential leadership changes and a policy overhaul.
  • Kevin Hassett, a frontrunner for Fed chair under Trump, proposes refocusing the Fed on monetary policy and bank regulation while cutting research divisions.
  • The push ties to beliefs that inflation pressures are easing, allowing for lower interest rates without stoking inflation.

Efforts to restructure the Federal Reserve have gained momentum as the White House signals that more aggressive action is needed to support the economy, according to people familiar with the matter. Kevin Hassett, former National Economic Council director and a leading candidate to become the next Fed chair under Trump, has outlined plans for a comprehensive overhaul of the central bank, emphasizing a shift away from what he calls politicization.

Hassett suggests refocusing the Fed strictly on monetary policy and bank regulation, reassessing or cutting parts of its research divisions, and replacing some officials if necessary. In recent remarks, he argued that there is still "for sure more room for rate cuts," linking this to perceived gains in aggregate supply from AI-driven productivity and large-scale factory investment. This view aligns with Trump's long-standing criticism that the Fed is not doing enough, now coupled with an explicit personnel and structural agenda.

Without a deal to implement these changes, the central bank could face increased political pressure, potentially undermining its independence. Hassett has criticized recent Fed leaders for speaking publicly about tariffs and inflation, framing it as inappropriate, even as he calls for the institution to be "nonpartisan." Attempts to reach current Fed officials for comment were unsuccessful, but sources indicate that internal discussions are ongoing amid market volatility.

The push for deeper rate cuts and a friendlier stance toward growth would directly affect borrowing costs for households and companies, asset prices like equities and real estate, and the dollar's strength in global capital flows. Borrowers, such as mortgage holders and small businesses, could benefit from lower rates, while savers and those reliant on fixed-income returns might be hurt. Any perceived increase in political influence over the Fed raises concerns among economists and investors about long-term inflation credibility.

Historically, political pressure on the Fed is not new, with tensions under presidents like Johnson and Nixon, but Trump and his allies have been unusually public and direct. In the short term, markets will watch for whether Trump nominates Hassett or another loyalist, which could lead to faster rate cuts or balance-sheet changes. Messaging that "more should be done" may increase volatility around Fed meetings as traders weigh political pressure against the Fed's data-dependent approach.

Long-term, a successful overhaul could shift the Fed toward a more growth- and employment-focused posture with less tolerance for restrictive policy. Alternatively, if investors doubt the Fed's independence, the U.S. could face higher risk premia, a weaker currency, or renewed inflation concerns. Parallel debates about central bank independence are ongoing in the UK and euro area, where similar clashes between monetary policy and political priorities have emerged.

Correction: An earlier version of this article misstated the timing of Hassett's remarks; they were made in recent weeks, not months.