The spring of 2020 marked the start of the COVID-19 pandemic and ushered in a period of economic instability across the nation. Inflation reached a 40-year high in 2022, prompting the Federal Reserve to raise its target rate in an effort to tame rising prices.

As the Fed worked toward achieving its target inflation rate of 2%, it raised rates 11 times. As a result, it’s become more expensive for Americans to borrow money. However, higher interest rates have benefited savers, providing higher returns on deposit accounts and other fixed-income investments.

With a presidential election just around the corner, you might wonder how much influence the incoming president will have over interest rates. Here’s a look at the president’s role in interest rate decisions, and what it means for your bank account when the powers that be choose to raise or lower rates.

How the Fed affects interest rates

The Federal Reserve doesn’t directly control interest rates set by individual financial institutions. The Federal Open Market Committee (FOMC) — the division of the Fed responsible for setting monetary policy — controls the federal funds rate. That’s the short-term interest rate that depository institutions charge each other to borrow money overnight.

When the FOMC raises or lowers its target rate, banks typically follow suit. Rising rates generally make it more expensive for consumers to borrow money, but it also means they’ll earn higher rates on savings accounts, certificates of deposit (CDs), and money market accounts. Conversely, lowering rates decreases short-term interest rates on credit products and deposit accounts.

Here’s a look at how rates have changed since 2022:

On Jan. 31, 2024, the Fed decided to pause rate hikes, and the current target rate remains at 5.25%-5.50%. The committee noted that it does not expect to reduce the target range until it’s confident that the inflation rate is “moving sustainably toward its 2% goal.”

Does the president control the Fed?

U.S. presidents don’t have authority over the Fed, but they do have certain powers that can impact the future of the Fed and its decisions.

The president can appoint and fire the Federal Reserve chair

The chair of the Board of Governors of the Federal Reserve System leads the Fed in working toward its key goals, including maximum employment, stable prices, and moderate long-term interest rates. Some of the Fed chair’s responsibilities include reporting to Congress on the Fed's monetary policy objectives, testifying before Congress, and meeting periodically with Treasury Secretary Janet Yellen.

According to the Federal Reserve Act, the chair and vice chair of the board are appointed by the president but must be confirmed by the Senate. Fed chairs and vice chairs serve four-year terms and can be reappointed by the sitting president. They can also be ousted by a sitting president, although this has never happened.

The president can nominate key officials

The president also nominates the seven members of the Board of Governors who serve on the FOMC and oversee the 12 Reserve Banks. Each member is appointed for up to 14 years, which is considered a full term, after which they can’t be reappointed.

“Other than nominations, the president has zero impact on Federal Reserve interest rate policy,” said Scott Fulford, a senior economist at the Consumer Financial Protection Bureau.

The president can discuss monetary policy and voice concerns

Though presidents can’t control interest rates directly, they can discuss their stance on current monetary policy and its impact on rates. But this can be a touchy topic.

“Institutionally, the Federal Reserve is very protective of its independence because that independence helps it achieve its mandate,” Fulford said. “Most presidential administrations go out of their way to avoid even publicly commenting on Fed policy.”

Even so, that hasn’t stopped some politicians from expressing their views on the Fed and its decisions — especially during an election year.

With his reelection campaign well underway, President Biden has expressed his take on the state of the economy, predicting that the Fed will cut rates. “I can’t guarantee it. But I bet — you betcha — those rates come down more because I bet you that that little outfit that sets interest rates, it’s going to come down,” he said in a recent speech in Philadelphia.

Former President Donald Trump, the presumptive nominee for the Republican party, has also openly shared his thoughts on the central bank’s rate decisions. “I think he's political. I think he's going to do something to probably help the Democrats, I think, if he lowers interest rates,” the former president said of Fed Chairman Jerome Powell in an interview with Fox Business Live.

Experts maintain that the Fed will continue to make decisions independently. Still, this outside commentary can lead to campaign promises and political actions that impact inflation and consumer prices in other ways, according to Fulford.

“For example, this administration has focused on resolving supply chain problems and reducing monopoly rent-seeking, which reduces inflation,” Fulford said. “Congress could raise taxes or spend less, which would also affect inflation.” He added that there are many policies that affect the broader cost of borrowing as well, such as reducing late fees or closing costs.

Bottom line: The Fed is designed to operate independently of politics, but public statements by the president can shape market expectations and potentially influence the Fed's policy decisions indirectly.

Preparing for the future: How to maximize your savings

Banks and credit unions can adjust their rates at any time at their discretion. You can’t control how rates change, but you can implement smart savings strategies to ride out interest rate fluctuations:

• Consider a high-yield savings account. These savings accounts offer higher interest rates compared to traditional savings accounts. When interest rates fluctuate, you can be sure you’re still earning a competitive rate compared to the market average with a high-yield account.

• Start now. Compound interest helps your savings grow exponentially over time. The earlier you begin saving, the more your balance will grow. Plus, you’ll have a head start if rates fall in the future.

• Shop around. Whether you’re looking to open a new savings account or reevaluate the one you currently have, regularly reviewing the best savings rates available can ensure you’re not missing out on better opportunities.

• Lock in your rate. If you think rates may fall soon, putting your money in a CD allows you to lock in competitive rates for the next several months or even years. Keep in mind that CDs require you to keep your money on deposit until the maturity date, otherwise you’ll be subject to an early withdrawal penalty.