Samuel Molina file photo

The Federal Reserve was established in 1913 in response to recurring financial panics, particularly the severe Panic of 1907, which revealed how fragile the U.S. banking system was without a central authority to respond to crises. Before the Fed’s creation, banking panics were often addressed informally by major financiers and private clearinghouses, such as those organized by J.P. Morgan during the Panic of 1907, which highlighted the need for a lasting, systematic solution. As the United States’ central bank, it has played a key role in responding to economic downturns.

During the 2008 financial crisis, the Fed reduced interest rates to near zero and used other monetary tools to support credit markets, help stabilize financial institutions and foster recovery from the housing market collapse. The Fed’s independence from short-term political pressures — statutorily insulated from control by the executive branch and Congress — is crucial to its ability to set monetary policy in pursuit of long-term economic stability. It is entrusted with setting rates that affect all of us for years to come.

These interest rates influence our ability to purchase a home, use credit cards and take out personal and business loans. Essentially, this institution has a greater impact on our ability to finance our dreams than our state legislature or Congress, which is why it is important that it maintains its independence — now under threat.

Throughout 2025, President Trump made it very apparent that he wants Chairman Jerome Powell to either reduce interest rates or to leave the Federal Reserve. His threats have shocked the stock market, increased bond yields and have contributed to economic uncertainty. By demanding that Chairman Powell reduce rates, Trump is seeking political advantage and short-term economic relief. However, rate reductions made without sufficient data and evidence can lead to higher inflation and increased unemployment in the future.

On Jan. 9, the Department of Justice served subpoenas related to Chairman Powell’s testimony last June about the Federal Reserve’s multiyear building renovation project — a move some critics say poses a threat to the institution’s independence in setting monetary policy. This development is deeply concerning, and many observers question whether President Trump was uninvolved in the subpoenas. However, it is not the first time a president has tried to influence or impede the Federal Reserve’s mandate.

In the early 1970s, President Nixon was intent on lowering interest rates and pressured Fed Chair Burns to implement expansionary monetary policies before the 1972 election. Chairman Burns obliged to President Nixon’s request and lowered rates that economists deem were lower than necessary. Chairman Burn’s actions contributed to a period of high inflation. To regain control, the Fed sharply increased interest rates in the late 1970s and early 1980s — reaching nearly 20 percent in 1981 — leading to a recession and an unemployment rate near 10 percent.

Investors both in the U.S. and around the world rely on the central bank to remain independent of the executive branch and Congress; this independence is a major reason they invest in U.S. markets. A central bank beholden to political influence can sow distrust and undermine investor confidence, potentially leading investors to look elsewhere.

President Trump’s demands for reduced interest rates are likely to hinder the economy more than help it. Chairman Powell’s term ends this May, and there is no compelling reason not to allow him to complete it with integrity. If the United States is to maintain its economic standing and remain an attractive destination for global investment, the Federal Reserve must be allowed to maintain its independence.

Samuel Molina is an Accredited Financial Counselor®, Certified Financial Therapist™ Practitioner, CEO and founder of The Academy of Financial Education, a nonprofit in Fresno dedicated to helping the community have a healthier relationship with money.