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That likely wouldn’t make Trump happy. During his first term, then-President Trump attacked Powell with regularity (even though it was Trump who had elevated him to his current role) for not lowering rates far enough, even once suggesting negative interest rates.

Trump also wasn’t afraid to talk about firing Powell, saying bluntly in a 2020 news conference that "I have the right to remove" him.

The then-president added that he could also demote Powell from his position as chair, "put him in a regular position, and put somebody else in charge."

Powell acknowledged last month his past public clashes with Trump, noting the tone remained consistent in private discussions.

"The president said the same things to me privately as he said publicly," Powell said on Dec. 4.

But Powell said he is "not concerned" that the central bank could lose its independence during a new Trump administration.

Powell has argued the Fed was created by Congress to be independent so it can make decisions for the benefit of Americans and not a particular political party. He has said there is "very broad support” for that concept from both Republicans and Democrats.

'Absurdly overstaffed'

Even if Trump doesn’t try to remove Powell, the relationship with the White House could be tested in other ways.

One could involve the Fed’s staffing.

The action could start with Musk and entrepreneur Vivek Ramaswamy, who are set to lead the Department of Government Efficiency (DOGE) and expect to propose sweeping cuts in government spending to create a more efficient government.

Some of those cuts, Musk has hinted, could involve the Fed. He said on X recently that the Fed is "absurdly overstaffed."

The Federal Reserve Board in Washington and its 12 regional reserve banks across the US employed about 24,000 people last year.

The vast majority — more than 86% — of staff work out of the reserve banks and branches located throughout the country. The Federal Reserve Board, located in Washington, D.C., employs about 3,000 staff members.

But unlike most of the federal government, the Fed is not funded through the taxpayers or the congressional appropriations process. The central bank funds its own operations — primarily from the interest on government securities that it gets through open market operations.

The Fed’s net operating expenses for 2024 are budgeted to be $7.1 billion, which amounts to roughly 0.1% of the federal government’s budget.

The Fed’s revenue has often covered its expenses, allowing the Fed to send its excess earnings to the US Treasury. Between 2012 and 2021, the Fed sent nearly $1 trillion to the Treasury.

Congresswoman Maxine Waters, the top Democrat on the House Financial Services Committee, issued a statement saying that Musk is laying the groundwork to use the Fed as a scapegoat to "deflect blame from the incoming administration’s disastrous economic policies."

"It is no surprise then that his co-President has claimed the Fed is overstaffed when he actually wants to enact Project 2025’s outlandish plan to end the Fed, sending the U.S. back to a 19th century economy," Waters said.

And Powell himself has suggested the Fed could be immune from the cutting block of DOGE, noting that the Fed is "self-funded" and has "strong legal independence."

'A partial list of the things we don't know'

Policies from the incoming administration could create additional uncertainty for Fed officials and mix the calculus for the trajectory of rates next year. President-elect Trump recently announced he would impose an additional 10% tariff on imports from China and 25% tariffs on imports from Mexico and Canada.

EY chief economist Gregory Daco forecast that steep tariff increases would lead to stagflation through lower growth and higher inflation while also triggering financial market turbulence.

Daco estimated that the 25% tariffs on Mexico and Canada, along with 10% tariffs on China, would reduce US GDP by 1.5% in 2025 and raise inflation by 0.4%.

Read more: What are tariffs, and how do they affect you?

Not all Fed watchers expect inflation to get worse, however.

Former St. Louis Fed president Jim Bullard, who served on the Fed during Trump’s first term in office, said he doesn’t see big inflationary impacts coming from tariffs because they could hurt growth.

"I think probably the detriment to the world economy would outweigh any price effects," he told Yahoo Finance. "So I'm not really seeing the inflation argument here on tariffs."

When Trump slapped tariffs on China in 2018 and 2019 and threatened many other countries during his first term, Bullard added, the trade war created uncertainty globally, and that caused businesses to pull back on investment.

Luke Tilley, chief economist for Wilmington Trust, agreed with Bullard and said he sees more pressure on economic growth than inflation.

If large tariffs led to a lot of retaliation, he said he believes the US would head toward recession. The central bank would then cut rates 12 months later.

"The larger the tariffs are, and the more retaliation there is, the more likely we are to have a recession and that would actually mean lower inflation and lower rates over the long term," Tilley said.

Powell said in December that there are still too many unknowns for the Fed to game out how tariffs could impact setting rates. However, he did say that some Fed officials have begun to factor in Trump’s proposed policies into their policy assumptions.

"We don’t know how big they’ll be, we don’t know their timing and their duration, we don’t know what goods will be tariffed, we don’t know what countries’ goods will be tariffed, we don’t know how that will play into prices," Powell said in December in New York.

"That’s a partial list of the things we don’t know."

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