Trump’s firing of Fed governor means independence of central banks | Fed

Donald Trump fires Lisa Cook Fed The governor was seen as a sharp escalation in the battle with more control over independent institutions late Monday.

Trump said in a letter posted on his Truth Social Platform that he was firing Cook for allegations of her committing mortgage fraud. The allegations were filed last week by Bill Pulte, appointed by the Federal Housing Administration’s Trump-appointed Trump, which regulates mortgage giants Fannie Mae and Freddie Mac.

Cook had previously said she would not leave her position.

Trump repeatedly attacks the Fed’s chair, Jerome Powellbecause it does not lower its short-term interest rate, and even threatens to fire him. Powell, who will speak at an economic seminar in Jackson Hole, Wyoming on Friday, said the Fed wants to see how the economy copes with Trump’s high tariffs on imports, which Powell said could drive inflation.

Powell’s caution has angered Trump, who asked the Fed to cut borrowing costs to stimulate the economy and lower the interest rate the federal government pays its debt. Trump also accused Powell of making a mistake in the US Central Bank’s $2.5 billion construction renovation project.

The firing of the Fed chairman or forcing the governor to threaten the Fed’s respected independence, which has long been supported by most economists and Wall Street investors. Here’s what the Fed knows:

The Federal Reserve The U.S. economy. By lowering short-term interest rates it controls (usually when the economy moves), the Fed can make borrowing cheaper and encourage more spending, accelerate growth and recruitment. When speed is increased (to calm the economy and hit inflation), it weakens the economy and causes unemployment.

Economists have long preferred independent central banks because they can more easily take unpopular steps to combat inflation, such as raising interest rates, which makes borrowing to buy a home, car or equipment more expensive.

After inflation surged in the 1970s and early 1980s, most economists consolidated the importance of an independent Fed. Former Fed Chairman Arthur Burns has been widely blamed for allowing painful inflation of the era to accelerate the pressure on Richard Nixon to keep the rate low in the 1972 election. Nixon was worried that higher interest rates would cost him his election, which he won on the slopes.

Paul Volcker was eventually appointed by Jimmy Carter as chairman of the Federal Reserve in 1979, pushing the Fed’s short-term interest rate to a staggering height of nearly 20%. (currently 4.3%). The striking rate triggered a sharp recession, lifting unemployment to nearly 11%, and sparking widespread protests.

But Volker did not retreat. By the mid-1980s, inflation had returned to low-unit numbers. Volcker’s willingness to cause pain to the economy The pain of throttle inflation is seen as a key example of the value of an independent Fed.

The effort to fire Powell is almost certain to cause stock prices to fall, bond yields increase, interest rates on government debt, and to raise borrowing costs for mortgages, auto loans and credit card debts. The 10-year interest rate of the Ministry of Finance is the benchmark for mortgage rates.

Most investors prefer an independent Fed, partly because it usually manages inflation better without political influence, and because its decisions are more predictable. Federal Reserve officials often discuss publicly how they will change interest rate policies if the economic situation changes.

If the Fed is more politically shaped, it will be difficult for financial markets to predict or understand its decisions.

In a ruling earlier this year, the Supreme Court stated that the president cannot fire the Fed chair simply because he does not like the president’s policy choices. But he may be able to remove him “for reasons”, often interpreted as meaning some kind of misconduct or negligence.

This may be the reason Trump administration The building has been renovated with zeros, hoping it can provide an excuse for “cause”. Still, Powell could fight any attempt to remove him, and the case could end in the Supreme Court.