Federal Reserve's Autonomy Threatened Amidst Stagnant U.S. Economy

The Federal Reserve's latest Beige Book report, released on September 3, 2025, indicates that economic activity and employment levels have remained largely unchanged in recent weeks, while prices have experienced moderate increases. Businesses and households are reportedly feeling the strain from tariffs and uncertain economic policies, particularly those associated with the Trump administration. Many firms have expressed concerns about trade policy, interest rates, and immigration policy, with some reporting that wage growth is lagging behind inflation. Despite the overall modest activity, there is a growing apprehension about potential declines in future demand, with approximately 20% of firms in the Dallas Federal Reserve district anticipating a downturn.

The Beige Book, a compilation of anecdotal information from the Federal Reserve's 12 districts, serves as a barometer for the nation's economic health. The latest report highlights that while some sectors, such as consumer spending and leisure travel, have seen slight upticks, manufacturing activity has declined modestly due to continued cost increases and supply chain challenges stemming from tariffs. In the Richmond district, for instance, manufacturing activity declined modestly amid continued cost increases and supply chain challenges due to tariffs.

Simultaneously, the Federal Reserve is facing unprecedented political pressure that threatens its longstanding independence. President Donald Trump has intensified efforts to influence the central bank's policies, including the attempted dismissal of Federal Reserve Governor Lisa Cook. On August 25, Trump announced Cook's removal, citing unproven allegations of mortgage fraud. Cook has since filed a lawsuit challenging the dismissal, arguing that the president lacks the authority to remove her without cause. This marks the first time in the Federal Reserve's 112-year history that a president has attempted to fire a sitting governor.

In parallel, Trump has nominated Stephen Miran to the Federal Reserve's Board of Governors. Miran, a proponent of allowing the president to dismiss Fed governors at will, supports Trump's push for aggressive interest rate cuts. However, in written testimony to the Senate Banking Committee, Miran stated he would uphold the Fed's independence if confirmed.

These developments have raised international concerns about the erosion of central bank autonomy. Bank of England Governor Andrew Bailey expressed deep concern over threats to the independence of the U.S. Federal Reserve, emphasizing that compromising this independence in favor of political decisions could lead to dangerous consequences.

The financial markets have responded to these uncertainties. Goldman Sachs has projected that gold prices could surge to nearly $5,000 per troy ounce if Trump's actions undermine the Fed's independence, reflecting investor anxiety over potential inflation and financial instability.

As the U.S. economy faces stagnation and potential downturns, the Federal Reserve's independence is more critical than ever. The recent political maneuvers not only threaten the central bank's autonomy but also pose risks to the broader economic stability of the nation.