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Trump Attempt To Interfere With The Federal Reserve Raises Fears About Loss Of Autonomy, Inflation Risk And Economic Impacts Inside And Outside The US
The comments from Federal Reserve Chairman Jerome Powell in Jackson Hole, suggesting a possible imminent interest rate cut, could please Donald Trump. The president has been pushing for lower rates to boost the economy.
However, days after the speech, Powell found himself at the center of a new crisis. Trump announced the firing of Lisa Cook, one of the Fed’s officials, opening an unprecedented dispute in the recent history of the institution.
The attempt to remove a Fed governor, coupled with constant criticisms of Powell, raises doubts about the independence of the central bank, which has lasted for over a century.
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It’s been since Nixon that we have seen something similar. Investors are now speculating how far Trump might go, what the legal consequences would be, and how the markets would react.
Motivations And Risks
Trump’s intentions are no secret. He seeks lower rates to stimulate spending and accelerate GDP growth. However, experts warn about the consequences of this interference.
Janet Yellen, former Fed chair and former Treasury Secretary, classified the situation as dangerous in an interview with CNN International.
The concern is not limited to the United States. Recent examples from other countries show what can happen when presidents weaken the independence of central banks.
The Case Of Turkey
Turkey, under the command of Recep Tayyip Erdogan, has become a clear example. Erdogan believed that cutting interest rates would control inflation. The result was quite the opposite: soaring prices and the collapse of the lira.
Between 2019 and 2021, Erdogan fired three central bank presidents for not following his vision. In 2022, inflation hit 85.5%, a record. The lira only held up due to the use of international reserves, which cost the country US$ 60 billion.
Pressure from society led to a turnaround in 2023. Turkey adopted a more conventional policy and raised interest rates to 50% in 2024.
Today, they remain around 43%. Even so, costs for families and businesses remain high, with mortgages above 40%.
About 9 million workers live on a minimum wage equivalent to US$ 538. For them, life has worsened over the last decade.
Still, experts remind us that Erdogan may reverse his course at any moment, reigniting instability.
The Experience Of Argentina
Argentina also shows the risks of a lack of monetary independence. Since 2013, the country has had eight central bank presidents, compared to three in the United States.
Historically, the BCRA has acted to finance deficits, printing money and fueling hyperinflation.
The peak came in April 2024, with inflation at 292%. Javier Milei, elected in 2023, had promised to close the central bank, but backed down.
He decided to support price stability and adopted austerity and reforms. The effect was quick: in July 2024, inflation fell to 36.6%, and Moody’s raised the country’s credit rating.
According to experts, the lesson is clear. Without independence, reputation erodes, country risk rises, and access to capital markets disappears.
The US In The 70s
American history also holds examples. In 1970, Nixon replaced William McChesney Martin with Arthur Burns at the helm of the Fed. During Burns’ term, the money supply expanded, especially during an election year.
Inflation soared: from 3.3% in 1971 to 11.8% in 1974. External shocks, such as oil cuts and rising food prices, worsened the situation.
But analysts recall that Burns’ lack of firmness in tightening monetary policy was decisive. The result was one of the most costly inflationary cycles in American history.
What Could Happen Now
Today, investors still doubt that Trump will fire Powell before the end of his term in May of next year.
However, the situation could change. If Cook is removed even after acquittal, it would set a precedent for other governors to also be removed.
Researchers point out that whenever a central bank’s independence is questioned, inflation expectations rise.
Families begin to believe in higher prices in the future, and this becomes an additional risk for the economy.
The White House defends Trump’s decision, stating that there were grounds to remove a governor accused of irregularities.
According to the government, this would increase the institution’s credibility. But analysts like George Saravelos from Deutsche Bank warn that the scenario could worsen.
He notes that the US is experiencing a twin deficit, spending more than it earns and importing more than it exports. This, combined with external debt, amplifies risks in the event of a crisis.
The Fed’s Safeguards
Despite the turbulence, the Fed has legal protections established since 1913. These safeguards provide more stability compared to countries like Argentina and Turkey.
Investor confidence still supports the institution, but signs of political interference are beginning to affect market perception.
Carola Binder, an economics professor at the University of Texas, points out that any decision from the Fed today will be seen as political.
If the cut is small, it will seem like resistance to Trump. If it is larger, it will be seen as concession. In both cases, credibility suffers.
Global Effects
The impact wouldn’t be limited to the United States. If the Fed’s independence is undermined, other populist leaders may feel encouraged to follow the same path. Officials interviewed by Reuters fear that this wave could cause serious damage to the global economy.
Binder sums up the situation: it’s not clear that the US would become another Turkey, but regaining lost trust is always much more difficult.
In the end, the dispute between Trump and the Fed is more than just a political clash. It’s a test of the resilience of an institution that supports not only the American economy but also global stability.
With information from CNN.
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