Imagine it’s January 2026. Federal Reserve Chair Jerome Powell has resisted President Donald Trump's calls on Truth Social for monetary stimulus, and the rest of the board is backing Powell. Using new powers granted him by a Republican Congress, Trump posts again — this time addressed to the entire board and delivering his "Apprentice"-era catchphrase: “You’re fired.”

To Fed veterans like me, and for all Americans, that would be a terrible outcome: because it probably would lead to higher inflation. Yet under a proposal coauthored by two of Trump’s choices for senior positions in the incoming administration, it could become a reality.

Trump has selected Stephen Miran to serve as chair of the Council of Economic Advisers and Daniel Katz to serve as chief of staff at the Treasury. Together, they have laid out a sweeping plan to overhaul the Federal Reserve System.

Their plan would give the president and Congress much greater political control over the Fed. This might look desirable to an incoming administration bent on working its will, but it would eviscerate the ability of the Fed to conduct monetary policy free from electoral considerations.

It would also shatter market confidence — and for good reason. An extensive academic literature and our historical experience in the U.S, demonstrate that increased political control tends to generate worse inflation.

Consider the unhappy experience of the 1970s. President Richard Nixon pressured then-Fed Chair Arthur Burns to run an easier monetary policy ahead of his 1972 reelection campaign. The result: a slight downtrend in unemployment before votes were cast, but another major rise in inflation after Nixon was sworn in.

Once lost, market confidence would be difficult to regain. It took Paul Volcker many years and a pair of painful recessions to convince investors and the public that the Fed was serious about achieving low inflation after Burns and Nixon had convinced them otherwise. Nobody wants to go through that again.

One key element of the Fed’s current protection from political intrusion is that the president can remove members of the Fed board only “for cause,” and has no power to remove Reserve Bank presidents. Katz and Miran would change that.

First, they would give the president the power to fire board members and bank presidents alike, for as simple a reason as disagreeing over policy — or for no reason at all.

Second, they would shorten the terms of Fed governors from 14 years to 8, and cause each term to start on the date of the board member’s confirmation — thus allowing many or all terms to expire at once. (Under current law, these terms overlap, with one expiring every two years.)

These changes would create the potential for a much sharper break in Fed policy every time the presidency turns over. Katz and Miran don’t pretend otherwise. If their proposal is enacted, they note, “a newly elected president will likely nominate all seven new board members in the early portion of his term.” The implications for monetary policy and bank supervision could be profound.

Katz and Miran try to offset the effect of increasing presidential control over the governors by upgrading the power of the Reserve Bank presidents. But it’s hard to see how heightening the role of 12 officials who are newly subjected to dismissal by the U.S, president makes the system more immune to political control.Perhaps even they aren’t sure their “reforms” would be well-received by markets, because they recommend phasing in the ability of a president to fire Fed leaders. If it’s a good idea, why not bring it on?

Then there is the matter of the Fed’s financing. Congress has given the Fed the power to set its own budget and fund its operations out of earnings from the securities it owns. Katz and Miran recommend bringing it under the appropriations process, with Congress approving the Fed’s budget once every five years.

The Fed’s ability to fund its own operations is part and parcel of its workaday independence from the political process. And it is not alone: The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation likewise do not receive appropriations from Congress.

Here, too, it’s not clear that Katz and Miran believe their own recommendation is a good idea. They write: “This appropriation should be done on a five-year basis, in order to guard against the chance that annual budget negotiations create an opportunity for undue political influence into the Fed’s operations.”

Limiting the opportunity to interfere only once every five years rather than annually would heighten the stakes around those quinquennial moments. Moreover, five-year budgets — used nowhere else in the government — would inevitably prove troublesome because of the inherent uncertainty of spending requirements over such a long period.

Most central banks around the world are granted some degree of independence because of a fundamental problem in monetary policy. If a central bank steps on the gas pedal, the benefits — higher employment — come sooner than the cost: higher inflation. If incumbent politicians are allowed to hold the monetary controls, they will be tempted to rev the economy before an election, figuring they’ll deal with the consequences later. An independent central bank can take the long view.

An extensive academic literature demonstrates that independent central banks tend to generate better inflation performance. In the words of a study from the IMF, “the empirical evidence confirms … that improvements in independence result in a steady decline in inflation.”

The Katz-Miran plan strikes at the heart of Fed independence. Legislation would be required to implement it. Members of Congress should carefully consider the lessons of our own history and the experience of other countries that have dallied with direct political control over the levers of monetary policy.

As inflation’s recent ascent to a decades-high level of 7.2% demonstrates, an independent central bank doesn’t necessarily deliver perfect inflation performance. Yet the overwhelming evidence of recent history and economic theory is that it beats the alternative. The costs of forgetting this hard-learned wisdom would be enormous.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Wilcox is director of U.S, economic research at Bloomberg Economics. From 2011 to 2018, he was director of the Federal Reserve Board's Division of Research and Statistics, and served as a senior adviser to three Fed chairs. In the late 1990s, he served as Treasury assistant secretary for economic policy.

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