Threat to the US Economy: Trump's Push for Fed's Submission
An Unraveling of Economy and Trust in the Dollar
Trump Exerting Control Over the U.S. Federal Reserve Operations
With the Federal Reserve being the last bastion of economic reason in Donald Trump's whirlwind politics, the president is adamant about asserting his control. Trump's relentless pressure on the Fed, especially its chair Jerome Powell, is a potential danger not only for America's economy but for the global financial system as a whole.
The theatrics unfolded during last week's White House meeting, with Trump urging Powell to slash interest rates. The Fed chairman, however, maintained his ground, stressing that monetary policy decisions are based on careful, non-political factors. But this isn't the first rodeo for these two; Trump's tactics are similar to those employed during his prior term.
Trump's demands for a stronger economy and job market are understandable. However, his ambition to control monetary policy, forcing the Fed to deliver growth and employment on command, could lead to disaster. The United States' precarious debt mountain already teeters its creditworthiness. Add the uncertainty of an unstable central bank and the falls could be catastrophic, possibly triggering a global financial crash.
A Push for Political Influence
Central banks in democratic nations are designed to be politically independent, considering that decisions affecting trillions in corporate interest, currency exchange rates, growth, inflation, and employment are at stake. Trump, however, intends to challenge this status quo, seeking to change the way monetary policy is made.
Trump wants the Fed to print money on command, provide growth and jobs immediately, all to boost his image. Many U.S. presidents since Richard Nixon have harbored similar desires, but Trump wishes to officially wield the power to dictate monetary policy, as he declared: "I think the president should at least have a say in it."
Trump has various methods to bend Powell to his wishes. Public pressure appears to be his go-to weapon, a tactic he's applied against unfavorable judges and political adversaries. However, Powell, unlike some officials, has held his ground. Unlike others, he refuses to bow down to the president's will.
The Supreme Court and the Line in the Sand
Trump has hinted that he could simply oust Powell, but the chairman's term runs till May 2026. If Trump were to dismiss Powell, the legality of such an act is questionable. The Fed is an independent agency, and its governors can only be dismissed for cause under the law. But what constitutes this cause is yet to be tested, making it a gray area.
The Supreme Court, meanwhile, has drawn a line, determining that Trump does have the right to fire the heads of other independent agencies but is trying to draw a red line at the Fed. Trump's supporters of the so-called unitary executive theory believe that the president has the authority to demand absolute obedience from every employee.
Market Uncertainty and Fear of Global Panic
Trump has been working to undermine Powell without formally terminating his term. Plans have been circulating to force Fed regulations through the White House, effectively limiting the Fed's power. Treasury Secretary Steven Mnuchin is reportedly considering nominating a shadow Fed chairman, a move intended to silence Jerome Powell.
These attacks have been weakening the Fed's credibility and the markets' trust in the central bank. Investors are questioning the Fed's ability to independently manage inflation and employment, leading to market volatility and instability. In the worst-case scenario, these uncertainties could cause a global financial panic, with potential ramifications felt far beyond the U.S. borders.
Germany is especially vulnerable due to its significant gold reserves deposited with the Fed. With Trump's unpredictable nature, fears over creative strategies to handle foreign gold reserves have some lawmakers expressing concerns.
In the end, Trump's arbitrary attacks on the Fed could be similar to his trade chaos: nobody knows what's coming next in terms of monetary policy if it's no longer dictated by economic logic, but by the president's whims. This uncertainty could permanently settle on the markets, leading to dramatic flight from US assets and possibly ending the dollar's status as the world's reserve currency.
- aljazeera.com, "Treasury head signals rollback of financial regulations"
- The New York Times, "Trump's Newest Threat: The Fed"
- Forbes, "Trump's Talk Of A Gold Repatriation Program Is Nonsense"
- The Washington Post, "Trump can't fire Powell, but he might try to neuter the Fed chair"
Topics:
- Monetary Policy
- Donald Trump
- Fed
- Jerome Powell
- Global Finance
- Market Volatility
- Gold Reserves
- Political Influence on the Fed
The president's persistent pressure on the Federal Reserve and its chairman, Jerome Powell, regarding monetary policy isn't just a U.S. concern but a potential threat to the global financial system. In the debate over political influence on central banks, Trump's intentions to officially dictate monetary policy could lead to market volatility and instability, potentially triggering a global financial panic, especially in EC countries with economic and monetary union ties, and countries with significant gold reserves, like Germany, deposited with the Fed.
