Is the Fed left- or right-leaning?

Happy third Fed Day of the year. Barring any significant surprises between the day I write this and the day it is published, today's Fed decision will likely be a hold on interest rates and a relatively inconsequential meeting. However, with the new government in Washington, you never know if something will come up on short notice.

Some investors are worried about whether Donald Trump or Treasury Secretary Scot Bessent will ‘lean’ on the Fed to move interest rates in one direction or another. There have already been a couple of days recently when markets dropped after Trump threatened to remove Jerome Powell before his term ends, though - as usual - he walked back those comments a day or two later.

But outside of Trump’s orbit, do people believe the Fed is politically neutral and only focused on its dual mandate of price stability and full employment? Yes, they do. Trust in the Fed remains high, and consumers on both sides of the political divide think it is a trustworthy if a bit boring, bunch of technocrats.

…I am joking, of course. This is 2025, and everybody hates the Fed and thinks it is in the pocket of the opposing political party.

The chart below is from a survey by Pei Kuang, Michael Weber, and Shihan Xie of more than 5,000 US consumers. People who identify as Republicans think the Fed is mostly Democrat-leaning, while people who identify as Democrats think the Fed is mostly Republican-leaning.

Perception of the political bias of the Fed

Source: Kuang et al. (2025)

This has consequences in real life because consumers who perceive the Fed to be more aligned with the opposing political party trust its actions less and tend to ignore its inflation guidance more when forming their inflation expectations.

Personally, I think it is a sign that the Fed is doing a good job of being politically neutral when political partisans on all sides think the Fed is biased against them. But in practice, being equally distrusted by both sides might backfire because it means the Fed has a tougher time communicating its actions and forecasts to the public. You don’t have an ‘inbuilt’ audience that will take your views on board and promote them among their local communities.

Things could have changed since the election, however. The survey was conducted before the election, but the participants were asked how their perception of the Fed would change if Trump were elected to a second term in office. Well, we no longer need to speculate about that event, so let’s look at how perceptions about the Fed might have changed in recent months.

Perception of political bias of the Fed under a hypothetical Trump presidency

Source: Kuang et al. (2025)

As you can see, the perception of the Fed under a hypothetical Trump administration has shifted quite a bit. Republican consumers expect that the Fed would become more Republican-leaning and partisan under Trump. The perception of the Fed by Democrats, meanwhile, would not change by much (they already believe the Fed is right leaning anyway). That might be good news for the Fed because it increases its influence with Republican consumers. But it also may be bad because if the perception that the Fed is politically right-leaning becomes more widespread, it could further undermine public trust in the Fed.