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The writer is a distinguished guy in residence at the Brookings Institution, former chairman of the Federal Reserve and former secretary of the treasury
The claim of US President Donald Trump that he has “fired” the governor of the Federal Reserve Lisa Cook is not only illegal. It is deeply dangerous.
It represents a direct attempt to politize FED, intimidate its leadership and to bow the monetary policy for the president’s will. This action threatens to put an end to the independence of the Federal Reserve – and thus the credibility of the monetary policy of the US both at home and abroad.
The law is clear: the Governors of the Federal Reserve serve exactly in the 14-year conditions so that they cannot be thrown aside by presidents who do not like their views or who are looking for their loyalty. Removal “for cause” is intended for documented misconduct. “Accusations” are not “cause”.
Cook has done its work with Integrity – Roads and Votes for Policy Development Materials designed to achieve the double mandate of the FED of price stability and maximum employment. For Trump to appeal, there is a fiction here; It is a pretext to justify an autocratic power grip.
This is not about one Governor of Federal Reserve. It’s about intimidation. By aiming cook, Trump sends a hair -raising message to each member of the Federal Reserve Board and to the Regional Reserve Bank presidents participating in the Federal Open Market Committee: Extrollable disagreement with the views of the President and you are the following.
Such threats can suppress these leaders of the Federal Reserve in their duty to offer honest, professional and independent views on monetary policy to the public. It can change their voting behavior. It would convert an institution that is known for its independence and a strong report of performance in a puppet phase for presidential grilling and priorities.
At the moment, an important priority of the Trump administration is that the FED considerably lower the interest rates to reduce the costs of maintenance of the $ 37 tn debt of the US government. The consequences are probably catastrophic.
History offers a blunt lesson: chaos follows when leaders conquer their central banks and force them to buy government debt or to reduce interest rates to maintain the costs of debt service. Germany in the 1920s, Hungary after the Second World War. Likewise, Argentina and Turkey are quite recently – the names change, but the story is the same.
Politized central banks provide higher inflation, volatile growth and weakened currencies. Such a road cannot be good for the US. We took this way before: during the Second World War, when the Fed was obliged to retain the interest rates to help the Treasury to finance the war. The result was high inflation.
In 1951 the Fed and Treasury reached an agreement. The Federal Reserve would then focus on price stability and maximum employment. Since that time it is the objectives, as required by law by the congress.
The credibility of the FED in drawing up a responsible monetary policy supports global trust in the dollar and in Treasury Securities, which are generally considered the world’s safest active. They support the American economy.
If markets believe that the hand of the FED is led by political orders, every interest rate decision will lose credibility. The expectations of inflation can come loose. The status of the dollar as the reserve currency of the world would be in danger. Both investors and allies would conclude that the US no longer has an independent central bank.
We would throw away one of the largest economic assets in our country. And ironically, this strategy will not even succeed in lowering the long -term interest rate. On the contrary; Long -term interest rate is likely to rise as a result of higher inflation expectations.
Trump’s attempt to play plunger of cook must be received indignation, not with shoulder picks. Congress must defend the independence of the FED. The courts must precipitate this illegal Power Play. And the financial community must raise its voice against a direct attack on the credibility of the dollar itself.
The independence of the Federal Reserve is not a technocratic kindness. It is the foundation of US economic stability and worldwide leadership. Trump’s attempt to break it down for personal gain is reckless, corrosive and deep on-American.
