Publisher’s Note: Despite Professor Franza’s friendly “jab” at my favorite baseball team, he’s done a great job in this column to crystallize how the Federal Reserve, the War in Iran, and Mid-Term Elections are affecting our economy.
Rick: Even though I am not an economist, my role as a college business professor at AU requires me to pay attention to the economy and how it is impacted by numerous factors. In addition, one of my favorite avocations is following domestic politics, motivated by time spent in Washington, D.C. in the 1980’s as a young Air Force officer helping to manage programs that were part of the President’s Strategic Defense Initiative (SDI).
Knowing my keen interest in the economy, politics, and how they intersect, a long-time friend forwarded me a news story with the headline, “Democrats top Republicans on Economy for First Time since 2010: Fox News Poll.” The story went on to say 52 percent of those surveyed think the Democrats would do a better job on the economy, while 48 percent backed Republicans, the first time the Democrats had an edge since such a poll was taken in May 2010, as the country was emerging from the Great Recession. In the 10 such polls since then, the Republicans came out ahead in each one, with as much as a 15-point edge in two of them (January 2022 and February 2023). My friend asked what I thought of this poll, and I told him it was like asking baseball fans right now who is better, the Phillies or the Mets? (Note: the Phillies and the Mets (much to the chagrin of ABD Publisher, Neil Gordon) had the two worst records in baseball.) My point being that recently, neither political party has demonstrated much deftness in their oversight of the economy.
Political issues may impact inflation, unemployment, interest rates, and economic growth.
- An escalation of the Iran War will likely cause negative impacts throughout the economy. This is why President Trump has been appropriately prudent in delaying escalation unless absolutely needed to eliminate Iran’s nuclear threat. An escalation will clearly lead to higher inflation, due primarily to increasing energy costs and supply chain delays, and lower growth due to economic uncertainty.
- I will defer most of analysis of the impact of upcoming Mid-term Elections on the economy for a future column closer to November. What I will say now is that the results may not matter too much. As I noted earlier, neither party has distinguished itself on the economy, from the Democrats’ “Green New Deal” driving up inflation to the Trump tariffs having a similar impact. It is probably good right now that neither side has a large majority, leading to stalemates. The party that comes up with a plan to tackle the debt will eventually emerge as the winner.
- There are several political issues related to the Federal Reserve, and each may have a significant impact on the economy:
- Lisa Cook Case: President Trump attempted to remove Federal Reserve Governor Lisa Cook for misconduct. The D.C. District Court found in September 2025 that Cook was likely to succeed in her legal claims regarding her removal. President Trump then took the case to the Supreme Court, which heard the case in January. Basically, the Supreme Court is assessing if the President’s power to remove Cook is limited by law and the independence of the Federal Reserve. Supreme Court observers currently believe the court will come down on the side of Cook, but it is no sure thing. If the President is allowed to remove Cook, he will most likely nominate a replacement who will side with him on reducing rates. While we all like lower interest rates, that may very well be bad for the economy. Also, the ability to remove Cook might be a death knell for Fed independence.
- Kevin Warsh Confirmation: President Trump nominated Kevin Warsh to replace Jerome Powell as Chairman of the Federal Reserve in May, and his confirmation hearings are underway. Warsh’s confirmation is almost a certainty, even if the vote is completely down party lines. Once confirmed, one of the key questions is how independent Warsh will be from the President? My best guess is that Warsh will be able to manage the relationship well and not be overly influenced by the President when it comes to interest rates. Warsh has several things on his agenda, such as Fed reform and reduction of quantitative easing (QE), that the President likely agrees with, so this will give him some time before he starts getting pressured on rates. I think Warsh is a good choice who will be able to defer on lower rates, which would likely lead to higher inflation.
- Powell Stays?: While Jerome Powell’s term as Fed Chair ends in May, his term as a Fed Governor does not end until January 2028. While it has been tradition that the Chair also steps down as a Governor when his term as Chair expires, this is not a sure thing this time around. For as much as the President has hassled Powell, I would not be surprised if Powell stays on past May for two reasons. First, to not allow the President to replace him with someone who will be inclined to reduce rates without the data to support a reduction, and second, to be able to use his influence to maintain Fed independence. If Powell stays on, interest rates are likely to remain where they are, and cuts will be less likely.
Assuming the Cook Case goes as expected, I would expect the political impact on the Fed to be lower. Warsh knows how to play the Washington game, and Powell will stay on if he thinks he needs to. In this political/economic chess game, I expect rates to remain stable unless an unexpected rise in unemployment requires a cut.
The intersection of politics and the economy is an interesting one. In the next few weeks, I recommend paying attention to what goes on related to the Fed (from Cook to Warsh to Powell), as this will likely impact you more than you might think.
