As Americans and many CFOs prepare to celebrate Independence Day this week, the ongoing feud between President Donald Trump and Federal Reserve Chair Jerome Powell remains an American tradition as old as apple pie.
However, the 112-year relationship between the U.S. government and the Federal Reserve continues to carry real consequences for finance leaders trying to forecast for their business, particularly in an economy that’s seemingly stuck in a holding pattern as inflation cools. However, Powell and his team still refuse to budge.
Despite signs of balancing between disinflation and stagflation, the Fed held rates steady at its June meeting and signaled just one cut this year. For CFOs overseeing or signing off on capital allocation, debt costs and long-range planning, that slow-motion approach creates a growing gap between immediate business needs and slow-moving monetary policy. The Federal Reserve may claim independence, but its failure to act has made it appear to many, including Trump and his staff, to look more like institutional inertia.
CFO takeaways from contention
In May, year-over-year inflation ticked up slightly to 2.4% from 2.3%, but that figure came in below expectations. Core inflation held steady YoY at 2.8%. Markets responded positively and continue to perform well, but not because the data showed dramatic improvement, but because it suggested inflation was still gradually cooling.
Even the impact of tariffs is still unknown, with many CFOs also recently saying they are in holding patterns of their own when it comes to tariff response. Still, the Fed’s 2% target is still out of reach as of now, and Powell appears reluctant to declare victory too early.
The labor market tells a similar story: technically still growing, but slowing. May saw a net gain of 139,000 jobs, but downward revisions to March and April numbers have raised questions about the true pace of hiring. The unemployment rate held at 4.2%, but federal job losses continued for a fourth straight month, with more expected as severance periods expire and legal delays resolve. Most of the job gains came from health care, whose cost increases are having ripple effects on CFOs. Most other sectors remained flat or negative.
Powell has maintained a “wait and see” approach, likely wary of reigniting inflation by stimulating lending. A rate cut would encourage more borrowing, as businesses and consumers alike are waiting on the sidelines for cheaper borrowing rates. However, as most CFOs know, under the U.S. fractional reserve system, that would quickly expand the money supply and thus drive up inflation.
Trump, however, has called on the Fed to move faster, blasting Powell’s competency publicly and already making plans for his replacement. The president has argued inflation is no longer a concern and urged Powell, most recently in a handwritten letter, to cut rates by a full percentage point. Powell, for his part, has repeatedly insisted the central bank will act independently of the White House.
How financial history impacts today
This tension between the executive branch and the central banking authority goes back to the earliest days of the republic. After the charter of the First Bank of the United States expired in 1811, the country entered the War of 1812 against the United Kingdom without a central bank. What followed led to a defeat and the burning of Washington, D.C., as well as fiscal disorder, rising inflation and a government forced to rely on unstable private lending to fund military operations. This played a major factor in the United States’ defeat during the war.
The crisis prompted the creation of the Second Bank of the United States in 1816, as an attempt to restore financial stability and create a means for the federal government to have access to capital without having to go through the then time-consuming process to go through state banks. That institution, too, would be dismantled by President Andrew Jackson, who argued for centralized financial power as a threat to democratic governance in his Bank Wars.
He began dismantling the Second Bank of the United States in 1832 by vetoing its recharter and publicly attacking it as a monopoly favoring wealthy elites. In 1833, he ordered federal deposits withdrawn and redistributed to state banks, effectively gutting the institution before its charter expired in 1836. Jackson made clear he viewed central banks as tools of elite corruption, warning they concentrated too much power in too few hands. He believed the Bank of the United States was unconstitutional and served the interests of wealthy Eastern financiers at the expense of ordinary citizens.
Jackson’s battle with the Second Bank was not his only economic standoff. Around the same time in 1828, he clashed with South Carolina over federal tariffs in what became known as the Nullification Crisis, asserting national control over trade policy. The confrontation marked one of the earliest signs of fiscal disagreements between states and the federal government, and is widely viewed by historians as an ideological precursor to secession and, eventually, the U.S. Civil War.
He also paid down the national debt to zero by 1835, the only time in U.S. history, arguing that a debt-free government would be less beholden to banks and financial interests. However, nearly a century later, a secret meeting at Jekyll Island in 1910 led to the creation of what we know today as the Federal Reserve Bank, whose power was granted just before Christmas in 1913. Though this system has proven its durability to hold power, contention has bubbled around the Federal Reserve’s autonomy and fiscal policies for over a century.
For today’s CFOs navigating an environment of high borrowing costs, global tariffs and political crosswinds, the unresolved debate over central bank power is more than just history; it is their daily reality. It shapes the cost of capital, the timing of investment decisions and the degree of risk embedded in every forecast.
