A researcher who studied Trump’s plans to control the Fed said it could tank the economy

• Economists at the Peterson Institute studied what would happen if Trump undermined Fed independence.
• They found that GDP would shrink, inflation would rise, and capital would flow to other countries.
• One of the researchers spoke to BI about the findings and said that recovery could take decades.

In August, Trump floated the idea that, as a successful businessman, he should have “at least” a say in the Federal Reserve’s monetary policy.

A new study by the Peterson Institute of International Economics, a renowned nonpartisan think tank, found that such an idea could have catastrophic economic consequences. The study’s lead researchers dug into the economic impact of three of Trump’s campaign promises: mass deportations, tariffs, and eroding Fed independence.

Throughout the course of a prospective Trump term, undermining the central bank’s independence would lead to $304 billion in economic losses, the study found.

While Trump has not specified exactly how he would interfere in the Fed, the researchers assumed he is successful and pressured the bank to jack up economic growth when conducting their study. They found that such action would result in lower GDP and higher inflation through 2040.

Business Insider spoke with one of the study’s authors, Warwick McKibbin, a senior fellow at PIIE. He said that initially, GDP and employment would rise, but that inflation and input costs would go up soon after. Eventually, capital would flow out of the US, causing the dollar to fall in value.

“It’s like the party at the front and the hangover after four years,” McKibbin said over the phone.

He said that by 2028, inflation would be built into the system at an additional 2% per year and the economy would shrink.

Domestic producers would bear the brunt of the consequences due to rising input costs. As domestic goods get more expensive, workers’ purchasing power would go down, McKibbin said. All the while, the researchers argue that investors would get spooked by the politicized Fed and start directing their capital to other countries starting around 2026. Production would shift to other parts of the world, including China, the study found.

“Ironically, it means the rest of the world gets this free lunch because all that capital that would have gone into building America’s future growth will now get invested somewhere else, mainly Canada, Mexico, and China, as well as Australia,” McKibbin told Business Insider. Though Trump promises an America First economic agenda, McKibbin said that taking control of the Fed would get him the opposite results.

According to the study, the economy would hit a low point in 2028 and begin rebounding.

“But not back to where you were,” McKibbin said.

He said the capital stock would feel the impact for a long time, and full recovery could take decades.

While Trump’s specific ideas about the Fed remain murky, some of his allies are quietly drafting plans on how to strip the central bank of independence, the Wall Street Journal reported. The 10-page manifesto apparently includes policy shifts and suggests the president should have a direct say over interest rates. Sources told the Journal the group thinks Trump should be able to fire Jerome Powell as Fed chair before his term ends in 2026.

Trump hasn’t publicly acknowledged the plans and his advisors said they’re not endorsed by the campaign.

McKibbin and his fellow researchers did not examine Vice President Kamala Harris’ policies in the same way because, according to the paper, she has not “proposed any major departures from the Biden administration’s policies and none with as significant international economic implications as Trump’s.”

Still, McKibbin said he wishes there was more research on the subject.

He doesn’t think the public is paying enough attention to the risks of Trump’s Fed proposals or the overall murkiness of the candidates’ economic policy. Neither Trump nor Harris has shared much about how to enact their proposals or their long-term economic impacts.

“If you’re going to advocate a policy, there has to be evidence as to why you’re advocating that policy,” McKibbin said.

The policy haziness persists even as the economy is a top issue for many voters and potentially the deciding issue in the election.