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It's the Economy, Stupid
Donald Trump reclaimed the presidency this week, and Democrats lost control of the U.S. Senate, no doubt changing the course of banking regulation for the next four years.
Lately, the regulatory environment has been tough for banks. JPMorgan Chase & Co. CEO Jamie Dimon invoked a knife fight recently when talking about the battles between banks and their regulators. He may be sheathing his knives soon.
Trump will influence this environment by appointing the heads of regulatory agencies. In last week’s newsletter, we described how Trump’s prior presidency led to reduced enforcement actions from the Consumer Financial Protection Bureau, for example.
But there’s something even more important to banking than regulation, and that’s the health of the U.S. economy. After all, if people and businesses aren’t in the mood to take out loans, a friendly regulatory environment isn’t going to pick up the slack. The president has an indirect but potentially powerful impact on this.
Trump has promised higher tariffs on foreign goods, an immigration crackdown and tax cuts. Some of this would require Congressional approval.
Trump has limited powers over the Federal Reserve, which guides monetary policy by setting interest rates, and by default, impacting inflation and the job market. The Fed’s Federal Open Market Committee cut the federal funds rate this week by one-quarter of a percentage point.
The Fed is designed to be independent of the president and Congress. The president, with approval from the Senate, appoints members of the Federal Reserve Board of Governors. Each member serves a 14-year term. The chair and vice chair serve four-year terms, but they don’t coincide with presidential terms.
Trump has lashed out at the Fed in previous years over decisions affecting monetary policy and said he had the authority to remove Fed Chairman Jerome Powell, a Trump and Biden appointee whose term expires in 2026. Reporters asked Powell this week whether he would step down if asked, and he gave a flat “no,” later saying that the president didn’t have the power to fire or demote him. This could set the stage for legal battles over the independence of the Fed.
In the end, the president’s influence over the economy will be far more important to banking than anything the regulatory agencies do.
• Naomi Snyder, editor-in-chief for Bank Director
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