Trump and Vance reiterate their call for presidential influence on Fed policy.

• Last week, former President Donald Trump stated that the president should have a say in monetary policy. Sen. JD Vance of Ohio, Trump's running mate, agreed with this stance.
• The Federal Reserve, an independent agency, sets interest rates.
• The FOMC's policy decisions will not be influenced by politics, as stated by Fed Chair Jerome Powell.

Donald Trump, the Republican presidential nominee, believes the president should have a say in raising and lowering interest rates.

During a news conference at his Mar-a-Lago residence in Florida on Thursday, Trump stated that the Federal Reserve had made many mistakes in their decision-making.

I made a lot of money, was very successful, and have a better instinct than many people on the Federal Reserve or the chairman, Trump said.

In a CNN interview on Sunday, Sen. JD Vance of Ohio, the Republican vice presidential nominee, expressed the view that interest rate policy should be a political decision.

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Over the weekend, Vice President Kamala Harris told reporters in Arizona that she "strongly disagrees" with Trump's suggestion that the president should have a voice in the central bank's monetary policy moves.

As president, I would never interfere in the decisions made by the independent Fed, Harris stated.

The president has no direct control over interest rates

The Federal Reserve, not the president, controls interest rates and operates independently of the White House.

The Fed's day-to-day operations are shielded from political influence to maintain its integrity, but its monetary policy and democratic accountability remain intact, according to Brett House, a professor of economics at Columbia Business School.

The Fed's mandate to promote maximum employment, keep prices stable, and ensure moderate long-term interest rates was established by the Federal Reserve Act, as explained by the House.

A president can always choose to gather support in Congress for an amendment of the act or new legislation if they want to change the mandate.

Trump has previously contested that the relationship between the executive branch and the Fed should not always follow that pattern.

Trump stated that he would lower interest rates significantly if he were elected.

The Republican presidential nominee stated at the National Association of Black Journalists' annual convention in Chicago that inflation and high interest rates are "destroying our country."

"I lower inflation, allowing people to buy bacon and ham sandwiches, enabling them to dine out affordably," he stated.

A rate cut is coming

Since the Covid-19 pandemic, inflation has been a persistent issue, with price increases reaching their highest levels in over 40 years. In response, the Fed implemented a series of rate hikes to slow down the economy and bring inflation under control.

The federal funds rate, which affects both overnight borrowing costs for banks and consumer borrowing costs, is currently within a range of 5.25% to 5.50%, resulting from 11 rate increases from March 2022 to July 2023.

The Fed's preferred inflation gauge, the personal consumption expenditures price index, showed a 2.5% year-over-year increase in June. Recent economic data suggests that inflation is falling back towards the Fed's 2% target, which may lead the central bank to lower its benchmark rate for the first time in years.

The likelihood of a quarter percentage point rate cut in September and a full percentage point rate cut by the end of the year has been fully priced into the markets.

If the fed funds rate decreases, borrowing costs for consumers may decrease as well.

Trump has a contentious history with the Fed

Trump, who appointed Jerome Powell as head of the nation's central bank in 2018, has been pushing for lower rates for years. Despite being a harsh critic of the Fed chief and his colleagues while in the White House, Trump broke with tradition by frequently and publicly attacking the Fed's decision-making.

Trump criticized the central bank for keeping a high fed funds rate, which he believed hindered businesses and consumers' borrowing ability and put the U.S. at a disadvantage compared to countries with lower rates during that time.

Despite Trump's comments, the Fed's benchmark remained unchanged.

The chairman will remain loyal to the Fed's mandate despite any pressure from the White House, according to House.

Trump has advised against the Fed reducing rates before the November presidential election.

In an interview with Bloomberg Businessweek in July, Trump stated that cutting rates in September, which is close to the election, is something that central bank officials should avoid doing.

This year, the ex-president disclosed to Fox Business that he would not renew Powell's tenure as Fed chairman.

"Trump stated, "I believe he's political and may lower interest rates to aid the Democrats.""

During a press conference following the FOMC meeting last month, Powell emphasized the Fed's unwavering attention to the economy.

"Powell stated that our approach remains unchanged in addressing other factors, such as the political calendar, and we never employ our tools to support or oppose a political party, politician, or any political outcome."

Regardless of who is president, the Fed's independence will remain paramount, according to Greg McBride, chief financial analyst at Bankrate.com.

A 'consequential year' for monetary policy

The central bank is an autonomous body responsible for making decisions regarding monetary policy, free from any political interference or pressure.

Still, the stakes are high in 2024.

In January, Fed Chair Powell stated at a press conference that the year would be highly consequential for the Fed and monetary policy.

The months that followed saw signs of economic growth and cooling inflation, leading to a widely anticipated rate cut, which is good news for Americans facing sky-high interest charges.

If the economic data supports it, central bankers will cut rates as soon as September, according to Powell after the Federal Open Market Committee meeting in July.

How the Fed adjusts policy during election years

The Fed has consistently maintained its course during presidential election years, whether it was tightening in 2004, cutting in 2008, or remaining on hold in 1996, 2012, and 2020, according to a research report by Wells Fargo released in February.

Since 1994, the Fed has adjusted its policy rate roughly the same number of times during presidential election years as during non-election years, according to the report.

According to a research note by Barclays, there is no evidence that Federal Reserve policy is different during presidential elections.

"McBride stated that the Fed's independence will remain crucial, and in the future, the broader economy will influence what the Fed does."

The Fed board members are nominated by the president and must be approved by the Senate. Powell will conclude his second four-year term as chair in 2026, opening the door to a potential change in leadership and direction of monetary policy during the next presidential term.

The Trump campaign did not respond to CNBC's request for comment.