Economic and financial analysts warn that President Donald Trump’s attempt to fire the governor of the Federal Reserve, Lisa Cook, the risks undermine the independence of the Central Bank, something that could finally put at risk the finances of US households.
On Monday night, Trump moved to Fire Cook for accusations of mortgage fraud. He quoted a “criminal reference” by the director of the Federal Housing Finance Agency William Ablict that claimed discrepancies in Cook mortgage application documents. Cook has refused to resign, and on Tuesday he said he was planning to file a demand challenging Trump’s move.
Cook serves in the Federal Reserve Committee to establish interest rates throughout the economy. To determine where that rate should be, the members of the committee weigh the risks for unemployment and inflation. When the labor market begins to seem weak, the Fed tends to reduce rates. When the risk of inflation is greater, it tends to increase them. Both movements carry risks: higher rates can suffocate economic growth, while lower rates can lead to balloon inflation.
Trump has requested lower rates since he assumed the position, citing a general desire to strengthen economic growth while discarding concerns about inflation. Although the previous presidents have expressed opinions on monetary policy, Trump’s influence attempts have no precedents, no Fed member has been eliminated by cause.
It is activating alarms, not only about disagreements on interest rates, but for what undue influence in the Fed could do to the economy. Academics have constantly concluded that interference with the independence of central banks such as the Federal Reserve can lead to inflation worsening, since it eliminates a key control of the government’s tendency to borrow as much money as possible.
“The presidential capture of the Fed would indicate to decision makers throughout the economy that interest rates will no longer be established on the solid database or economic conditions, but in the president’s whims,” the Institute of Economic Policy said in a statement.
“The confidence that the Fed responds wisely to future periods of macroeconomic stress, either in excess of inflation or unemployment, will evaporate,” he added.
Interfere with the independence of the FED “will make the markets less stable and fuel of inflationary pressures, harming workers and weakening the economy as a whole,” said Elizabeth Wilkins, chief of cabinet of the president of the Federal Commission of Commerce under Presidents Barack Obama and Joe Biden, in a statement.
Trump administration officials have dismissed concerns about the threats to the independence of the Fed and the accusations against Cook doubled.
Until now, the Committee has not moved the rates. Although his membership consists mainly of appointed by Biden, members historically avoid political conflicts. But by eliminating Cook, who was named by Biden in 2022, Trump could name another voting member who sees things in his own way. That would not yet create a majority, and analysts have noticed that Cook was somewhat more inclined to lower rates.
But Trump’s message could not be clearer, experts say.
“We have to be honest that Lisa Cook was probably attacked … and then eliminated without due process,” said Peter Bockvar, an independent economist and market strategist and author of the Backk report, in a note. The goal, he said, was “remakeing the Fed with people who will be more inclined to reduce interest rates.”
“The real question should be, did mortgage fraud commit?” Secretary of Commerce Howard Lutnick said in an appearance on CNBC on Tuesday. “Yes or no, and if he committed mortgage fraud, leave the federal government. Salt from the seat of the governor of the Federal Reserve and go.”
A White House representative did not immediately respond to a request for comments.
Until Tuesday morning, the market reaction has been silent. The three main shares indices were slightly lower in early trade, while the value of the dollar against a basket of other currencies decreased a bit. Gold prices have not moved much either. But the performance or yield required by investors for lending to the Government, in the 30 -year treasure note, Rose: a sign of investors are concerned about longer -term inflation concerns.
It is likely that the Cook dispute ends in the Supreme Court, which recently issued a ruling that is said that while the president has broad freedom to control federal agencies, their ability to make personnel decisions in the Federal Reserve can be more limited.
Some analysts believe that the markets are not taking the threat to the independence of the Fed. In a note for customers, George Saravelos, head of currency research at Deutsche Bank, raised the spectrum of “fiscal domain”, in which the president has too much, for example, on monetary policy and interest rates.
“In our opinion, there is no doubt that Fed is now subject to intensifying the risks of fiscal domain,” he wrote. “What is a greater surprise for us is that the market is no more worried.”
