Could a Trump administration challenge the Fed's independence?

As Americans await the outcome of the 2024 presidential election, the potential economic impact of a Trump administration on Federal Reserve policy has emerged as a key question for investors.

 While nearly all analysts agree that Trump's proposed tariff measures are likely to drive inflation higher, concerns also surround the potential influence he could wield over Federal Reserve policy and the risks he might pose to the central bank's independence.

Trump has pledged to reintroduce tariffs on imports, proposing a 60% tariff on Chinese products and a 10% tariff on imports from other countries. 

Combined with potential tax cuts and stricter immigration policies, economists widely view these proposals as inflationary, and likely to intensify price pressures within the US economy.

A recent analysis by JP Morgan suggests that these tariffs, along with tax cuts, could push inflation up by an estimated 2.5 percentage points. Should inflation rise significantly, the Fed, which is mandated to ensure price stability, might have little choice but to respond with tighter monetary policy. 

The bank's traditional tool for managing inflation - a hike in interest rates - would probably become necessary, or at the very least, anticipated rate cuts for 2025 could be put on hold.

Goldman Sachs' Chief Economist Jan Hatzius projects that Trump's proposed policies could push core inflation above 3% in 2025, exceeding the Fed's 2% target. 

This, Hatzius noted: "might well be a reason to delay cuts that might otherwise occur more quickly". 

If Trump's economic policies were to accelerate inflation, the Fed's ability to ease monetary conditions would be constrained, potentially complicating Trump's own growth agenda.

The independence of the Federal