Stepping on the Third Rail: How Trump Aims to Control the Fed
Trump seeks control over U.S. Federal Reserve operations
The Fed, America's last pillar of financial common sense in a sea of Trump-induced chaos, is under siege. Like the hallowed halls of ivy league universities, courts, and administrative bodies, the Fed is on Trump's hit list. Here's why subordinating the US central bank could set off a financial catastrophe, far beyond our borders.
Trump's latest tactic involves bending the Fed Chair to his will - lower interest rates - to boost growth and job figures before the next election. But after last week's White House meeting, it seems that Fed Chief Jerome Powell remains detached and unwilling to obey. In a written statement, Powell emphasized that interest rate decisions are based on impartial economic data and not on any political pressure.
History Repeats Itself
The Fed-Trump standoff is a rehash of their previous showdown during Trump's first term. On multiple occasions, Trump pressure-cooked the Fed chief regarding interest rates. But then, the checks and balances were in place to stop Trump's assault. Not this time.
The Unspoken Threat
Trump recognizes the Fed as the last bastion of reason that he needs to conquer if he wants to rule unfettered. Like elite institutions, the Fed's independence limited his power. Now, Trump seems willing to ignore legal boundaries to subdue the Fed.
Consequences of a Trump-Controlled Fed
The consequences of dismantling the Fed's independence could be disastrous. The US aftershock might lead to a global financial collapse. The US's already shaky debt mountain could topple if the Fed crumbles, and the US economy could spiral downward.
Trump fancies himself a monetary puppeteer, eager to print money on whim to produce instant growth and jobs. But central banks in democracies are politically independent for a reason - their decisions affect trillions of dollars - corporate interest costs, profits, the dollar exchange rate, inflation, job rates, and more. The Fed operates independently to keep inflation low and unemployment high, based on economic data, to sustain long-term stability.
Trump's Power Play
Trump aims to alter the central bank's role to fulfill his campaign promises. Pressuring the Fed chief, firing him, or leveraging unitary executive theory to force obedience are all on the table. With no legal boundaries preventing him, Trump could remove Powell for "ineffectiveness."
Public pressure is just one tool in Trump's arsenal. Alternative strategies include appointing a shadow Fed chief or demoting Powell but retaining his title while shifting decision-making powers to a Trump loyalist. This impasse could result in two competing Fed voices, deadlocked and unable to guide the economy.
The Impact on Markets
The rumblings of political interference in the Fed have eroded its credibility, leading to a lack of trust in the markets. This vacillation in trust threatens to deter investments and consumption, putting the economy at risk. If uncertainty persists, we could be on the precipice of a global financial meltdown.
"If Powell were fired, the subsequent exodus from US assets would cause the role of the dollar as the world's reserve currency to evaporate, leaving US Treasury bonds as an untrusted safe haven," predicts a London investment analyst.
Germany, with over a third of its gold reserves stored in the Fed's vaults, would be among the countries hardest hit by a global financial catastrophe. The ongoing storage of gold is a cause for concern, as we cannot rule out Trump's creative schemes involving foreign gold reserves.
Source: ntv.de
- Central Bank Politics
- Donald Trump
- Fed
- Jerome Powell
- The political tussle between Donald Trump and the Federal Reserve (Fed), which is reminiscent of their previous standoff, could have repercussions beyond the United States, particularly in European Central (EC) countries that are part of the economic and monetary union, as the instability in the US could trigger a global financial crisis.
- Businesses and financial markets are closely watching the power play between Donald Trump and Fed Chair Jerome Powell, as any potential changes to the Fed's monetary policy, motivated by political pressure, could have wide-ranging impacts, influencing corporate interest costs, profits, inflation rates, and employment figures worldwide.
