Top economist says Trump’s Fed strain is probably not felt for years: ‘You can seem to get away with quite a bit whilst you’re truly doing quite a lot of injury’

Last week, he fired Bureau of Labor Statistics Commissioner Erika McEntarfer, just hours after the agency released a dismal July jobs report. He plans to appoint someone in her place that he deems “more competent.” Days earlier, Trump announced plans to name the next Federal Reserve chair “very soon,” months before current Fed Chair Jerome Powell’s term is set to expire. The move gives Trump an unusual opportunity to shape the direction of the central bank well ahead of schedule.

Some critics have warned the back-to-back shakeups represent a broader trend of the second Trump presidency, one of weakened political independence of key financial bodies—an essential feature of U.S. liberal democracy. 

To explore what this shift means for business leaders, Fortune spoke with Francis Fukuyama, one of the world’s leading scholars on democratic institutions.

A familiar warning from the 1970s

“Trump’s philosophy is that everything is political,” Fukuyama said. “Either you’re with him or against him—and if you’re against him, you shouldn’t be in government.”

That approach, he said, directly conflicts with the liberal model of governance: one built on an “impersonal, nonpartisan bureaucracy” that is managed by technical experts. In ultra-complex, wealthy economies like the United States, Fukuyama argues, that model is essential for long-term stability.

Trump appears to be disinterested in that vision, Fukuyama said. He has floated the idea of appointing himself as Fed chair and continuously threatens Powell in a bid to challenge his authority. Rather than deferring to experts, Trump has signaled a desire to steer economic decisions from the executive branch. 

Yet, institutions like the Fed are designed to resist this kind of interference. Their role is to be insulated from the drama of political cycles, particularly when it comes to interest rates, where short-term cuts could help a president win reelection but drive long-term inflation.

While Fukuyama said past presidents have respected those guardrails, Trump’s direct and hostile pressure on the central bank is “unprecedented.”

He compared the moment to the early 1970s, when President Richard Nixon repeatedly pushed the Fed to slash interest rates ahead of his reelection campaign. The Fed Chair at the time capitulated, a move that helped trigger the decade’s hyperinflation.

“That era is very comparable to what’s happening now,” Fukuyama said. “We have so many examples of what happens to countries without independent central banks.”

He cited cases from Latin America and sub-Saharan Africa in the 1980s, where politically captured central banks helped skyrocket prices. 

The problem for CEOs and investors, Fukuyama warned, is that if the next Fed chair is more willing to follow Trump’s preferences, the effects may not be felt right away.

“If Trump were to fire Powell tomorrow, people wouldn’t feel the impact for two, maybe three years,” he said. “People may not connect that political act to the economic pain they’re feeling.”

That delay, he added, creates fragility. “You can appear to get away with a lot while you’re actually doing a lot of damage.”

The risks of politicizing data

Fukuyama said Trump’s firing of McEntarfer carries a different, but equally serious risk: the politicization of official statistics. He pointed to Argentina in 2007, when then-President Néstor Kirchner dismissed a government statistician whose inflation reports clashed with the government’s narrative.

“Magically, inflation went down,” Fukuyama said. “Everybody knew that this was just completely politically based and not credible.” 

He warned that once credibility is lost, it’s hard to get it back. “That’s the risk we face when we start chipping away at the independence of these neutral experts.”

Why CEOs should keep their distance

For business leaders, the incentive to stay neutral may not be clear. Fukyuama noted how some executives have attended exclusive Trump fundraising dinners, including events where investors in Trump’s cryptocurrency were offered personal access to the president.

But Fukuyama warned that getting too close to political figures often backfires. 

“It’s hard to run a predictable, modern business when politics gets too involved,” he said. “In the old days, if you had to bribe a politician to get your way, that was a very inefficient system.”

He also cited Elon Musk as an example of how overt politicization complicates a company’s public image. By politicizing his brand, Musk alienated the exact market he hoped to sell cars to. 

The lesson, Fukuyama added, is that CEOs are better off operating within a stable, depoliticized system. “The more predictable the rules, the easier it is to do business.”