An alleged incorrectly completed mortgage application: that accusation takes the Trump government to want to dismiss director Lisa Cook from the US Central Bank, the Federal Reserve. With that, the US president continues to the independence of the ‘Fed’. It is unclear whether the violation of Cook took place, and it is also uncertain whether this would be a legitimate reason for dismissal.
But the terling was thrown. Cook has since announced that it would challenge her resignation in a procedure that-it sounds known-has a great chance of ending up at the American Supreme Court, which is now being dominated by Trump-minded judges. A slow shift of the FED board in the direction of a Trump-minded majority is in that sense a continuation of the encapsulation of important independent institutions by the US government.
Trump adviser Stephen Miran has since been nominated as a temporary board member, in addition to two already sitting colleagues from the Trump camp. At the beginning of next year, the term of the FED chairman Jerome Powell will expire. In addition, there are appointments of regional FED administrators who, in turn, participate in decisions about the policy. A dominant Trump quota comes into view so quickly.
Now his appointments at central banks are always political: it is the scarce moments that the outside world can influence the strict independence of these institutions. That independence is not for nothing. Central banks watch over the price stability and integrity of their currency. They do this mainly by determining or influencing the height of the interest.
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After Trumps attack on the Fed, the markets only respond ‘nervous’. But look a low deeper, there you see the real damage
Political interference is at odds with that, but that is what Trump wants openly. He has been insisting on a lower interest rate for ages, where the danger is that inflation will get free rein and get up. Trumps distant predecessor Richard Nixon also exerted heavy pressure on the Fed in the 1970s, after which inflation got completely out of hand. A recent example is Turkey, where President Erdogan forced the central bank to interest, with also towering inflation as a result.
Central banks now look extra vulnerable. What does not help is that they have purchased an enormous amount of national debt since the financial crisis, partly to prevent inflation from being lied. So many government loans on their balance – far above what they need with normal policy, she unintentionally gives a more political role than they would have desired.
Transforming the FED into a political organization is a substantial danger. Not just for the US itself. The dominance of the FED in the world economy and the international financial system is huge. This is not only about the interest rate policy, but also about the possible political deployment of the Central Bank for buying up even more American national debt (‘monetary financing’), or, for example, about providing all -dollars allies in times of crisis (‘Swap Lines‘). A power grip from the White House puts all that at stake.
That Trump does not see the risks or takes it for granted does not have to be a surprise. That the financial markets hardly respond to the Cook’s resignation threat is for the time being. Perhaps the enormous risk is not taken seriously yet. That will come.