WASHINGTON: Donald Trump\u2019s simmering discontent with the US Federal Reserve boiled over this week, with the president threatening to take the unprecedented step of ousting the head of the fiercely independent central bank.
\nTrump has repeatedly said he wants rate cuts now to help stimulate economic growth as he rolls out his tariff plans, and has threatened to fire Fed Chair Jerome Powell if he does not comply, putting the bank and the White House on a collision course that analysts warn could destabilize US financial markets.
\n\u201cIf I want him out, he\u2019ll be out of there real fast, believe me,\u201d Trump said Thursday, referring to Powell, whose second four-year stint as Fed chair ends in May 2026.
\nPowell has said he has no plans to step down early, adding this week that he considers the bank\u2019s independence over monetary policy to be a \u201cmatter of law.\u201d
\n\u201cClearly, the fact that the Fed chairman feels that he has to address it means that they are serious,\u201d KPMG chief economist Diane Swonk told AFP, referring to the White House.
\nStephanie Roth, chief economist at Wolfe Research, said she thinks \u201cthey will come into conflict,\u201d but does not think \u201cthat the Fed is going to succumb to the political pressure.\u201d
\nMost economists agree that the administration\u2019s tariff plans \u2014 which include a 10 percent \u201cbaseline\u201d rate on imports from most countries \u2014 will put upward pressure on prices and cool economic growth, at least in the short term.
\nThat would keep inflation well away from the Fed\u2019s long-term target of two percent, and likely prevent policymakers from cutting rates in the next few months.
\n\u201cThey\u2019re not going to react because Trump posted that they should be cutting,\u201d Roth said in an interview, adding that doing so would be \u201ca recipe for a disaster\u201d for the US economy.<\/p>\n
Many legal scholars say the US president does not have the power to fire the Fed chair or any of his colleagues on the bank\u2019s 19-person rate-setting committee for any reason but cause.
\nThe Fed system, created more than a century ago, is also designed to insulate the US central bank from political interference.
\n\u201cIndependence is absolutely critical for the Fed,\u201d said Roth. \u201cCountries that do not have independent central banks have currencies that are notably weaker and interest rates that are notably higher.\u201d
\nMoody\u2019s Analytics chief economist Mark Zandi told AFP that \u201cwe\u2019ve had strong evidence that impairing central bank independence is a really bad idea.\u201d<\/p>\n
One serious threat to the Fed\u2019s independence comes from an ongoing case in which the Trump administration has indicated it will seek to challenge a 1935 Supreme Court decision denying the US president the right to fire the heads of independent government agencies.
\nThe case could have serious ramifications for the Fed, given its status as an independent agency whose leadership believes they cannot currently be fired by the president for any reason but cause.
\nBut even if the Trump administration succeeds in court, it may soon run into the ultimate guardrail of Fed independence: The bond markets.
\nDuring the recent market turbulence unleashed by Trump\u2019s tariff plans, US government bond yields surged and the dollar fell, signaling that investors may not see the United States as the safe haven investment it once was.
\nFaced with the sharp rise in US Treasury yields, the Trump administration paused its plans for higher tariffs against dozens of countries, a move that helped calm the financial markets.
\nIf investors believed the Fed\u2019s independence to tackle inflation was compromised, that would likely push up the yields on long-dated government bonds on the assumption that long-term inflation would be higher, and put pressure on the administration.
\n\u201cYou can\u2019t control the bond market. And that\u2019s the moral of the story,\u201d said Swonk.
\n\u201cAnd that\u2019s why you want an independent Fed.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
WASHINGTON: Donald Trump\u2019s simmering discontent with the US Federal Reserve boiled over this week, with the president threatening to take the unprecedented step of ousting the head of the fiercely independent central bank. Trump has repeatedly said he wants rate cuts now to help stimulate economic growth as he rolls out his tariff plans, and …<\/p>\n","protected":false},"author":4,"featured_media":79874,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-79856","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-world"],"_links":{"self":[{"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/posts\/79856","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/comments?post=79856"}],"version-history":[{"count":1,"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/posts\/79856\/revisions"}],"predecessor-version":[{"id":79876,"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/posts\/79856\/revisions\/79876"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/media\/79874"}],"wp:attachment":[{"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/media?parent=79856"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/categories?post=79856"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nabanews.pk\/en\/wp-json\/wp\/v2\/tags?post=79856"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}