Stable and escalating the US president’s attacks are characterized Donald Trumpto the US Central Bank (FED), with a clear goal of controlling monetary policy.
For months, President Trump has accused Fed President Jerome Powell-whom he had appointed to this position in 2017-because it does not reduce the central bank’s basic interest rate from 4.25%-4.5%today at 1%, a level that he considers to be the right one.
At the same time, the US president threatened to remove Powell from his post, although his term expired in May 2026, violating the legislated Fed’s legislated independence from political power.
He finally withdrew this threat, probably in fear of possible reactions that would exist in the markets from such a move. But she tried last week to indirectly check the Fed, dismissing through a announcement on social media, one of the seven members of her board, accusing Lisa Cook of receiving faults in 2022 before appointing his Fed Governor from his predecessor.
Cook has challenged these charges and remains in its position, by lawsuits against Trump’s ruling. The Fed Founding Law since 1913 predicts that US presidents can dismiss a member of the Board of Directors. Only if there is a “serious reason”, which is considered to be in cases of mismanagement or neglect of duties.
If Trump succeeds in removing Cook, he will have appointed four of the seven members of the Board of Directors. of the Fed and will, as he believes, be influenced by its decisions for the next 9 months that Powell will be president. Even if that happens, however, it is not certain that it can dictate monetary policy.
Fed’s decisions on interest rates and other issues, such as government bond markets, are taken by the Federal Open Market Committee, in which the right to vote in addition to the 7 members of the Board of Directors. They have 5 other members, who are rotated by the heads of the 12 US Regional Central Banks.
In addition, Trump’s attempt to undermine the Fed’s independence has only sparked limited reactions to the dollar markets and long -term US bonds. The dollar and prices of 10 -year government securities fell last Monday, shortly after the announcement of Cook’s dismissal, but the following day they recovered after the latter said it was not going to resign.
Probably, however, markets will react in a more powerful way if the Fed actually proceeds to a large -scale interest rate decline in the coming months, tearing it to 1%, at a time when inflation is close to 3%, significantly above its 2%target. The US has a negative experience, in the not -so -distant past, from the attempt to control monetary policy based on their own aspirations and the political circle.
At the beginning of the 1970s, then US President Richard Nixon influenced the Fed to reduce interest rates, while inflation was approaching 6%, as it wanted to show that the US economy was strong in the face of 1972 elections. reached 13.5% in 1980.
To cope with this scourge, Paul Wolker, who was appointed in 1979 Fed by Jimmy Carter, made the difficult decision to raise the interest rate to 20%, causing a recession in the US economy, but succeeding in reducing inflation below 2% in the 1980s.
The inflationary shock of the 1970s was the one that forged the US’s belief that Central Bank’s independence, not only legislative but also in practice, was a prerequisite for maintaining the stability of prices that in turn shapes more favorable conditions for economic growth. The US governments have respected this principle for the last 40 years, until Trump’s challenge began from his first presidential term, then in a restrained manner.
The independence of the central banks then became a global trend, especially since the end of the 10th of 1990. In Europe it was Germany who gave the first mark, with the 1957 Bundesbank law, which explicitly provides that the Central Bank administration is not affected by the monetary policy. Bundesnbank actually practiced its policy and this is considered to be a key reason that inflation in Germany was kept lower than other countries and led to the great power of German Marco.
The example of the Bundesbank continued at the European Central Bank, with its statutes explicitly stating that its aim is to provide price stability and providing its independence from governments.
ECB President Christine Lagarde referred to a recent speech in research showing that high confidence in the ECB reduces inflationary expectations and significantly limits the uncertainty about future inflation.