What Trump’s firing of Fed governor means for central bank’s independence | Federal Reserve

Donald Trump fired the Federal Reserve Governor Lisa Cook with a movement that was seen as a sharp rise in the war to make more control over the independent institution on Monday.

In a letter published on the social platform, Trump said he fired Cook because of allegations of mortgage fraud. Last week, the allegation was made by Bill Pulte, who was appointed to the Federal Housing Administration, an agency that organized the mortgage giants Fannie Mae and Freddie Mac.

Cook said he wouldn’t leave his post before.

Since Trump did not cut the short -term interest rate, he repeatedly attacked the Fed’s chair Jerome Powell and even threatened to expel him. Powell, who will talk at an economic symposium in Jackson Hole on Friday, said Fed wanted to see how the economy reacted to Trump’s comprehensive tariffs in imports, and Powell could increase inflation.

Powell’s warning infuriated Trump, who demanded that the Fed demanded to reduce borrowing costs in order to encourage the economy and reduce the interest rates paid by the federal government. Trump also accused Powell of incorrect managing the US Federal Reserve of the US Federal Reserve of $ 2.5 billion.

Expelling the FED chair or forcing a governor threatens the respected independence of the Fed, supported by most economists and Wall Street investors. What you need to know about the Fed:

The Fed uses a wide force on the US economy. By cutting the short-term interest rate, when the economy decreases, it can make borrowing cheaper and encourage more spending, accelerate growth and recruitment. It can weaken the economy and cause loss of work when it increases the ratio to cool the economy and combat inflation.

Economists have long preferred independent central banks, because they can take non -popular steps to combat inflation, which makes borrowing more expensive to buy a house, cars or devices.

The importance of an Independent FED was strengthened for most economists after the expanded inflation increase in the 1970s and early 1980s. Arthur Burns, former President of the FED, was accused of allowing the painful inflation of that period to accelerate by defeating Richard Nixon to protect low headings for the 1972 elections. Nixon was afraid that higher proportions would cost the election in which he won a landslide.

Paul Volcker was finally appointed by Jimmy Carter as the President of the FED in 1979 and pushed the short -term ratio of the Fed to a surprisingly high level of approximately 20%. (Currently 4.3%). Dazzling rates triggered a sharp stagnation, pushed unemployment to about 11%, and encouraged widespread protests.

Still, Volcker did not escape. In the mid -1980s, inflation had returned to a low -low house. Volcker’s desire to suffer in order to reduce inflation to the economy is seen as a fundamental example of the value of an independent nutrition by most economists.

The effort to ignite Powell will almost certainly cause stock prices to decrease and bond returns, increase the interest rates to the government debt and increase borrowing costs for mortgage, automobile loans and credit card debt. The interest rate in the 10 -year Treasury is a criterion for mortgage rates.

Most investors prefer an independent feeding, in part because they manage inflation better without being affected by politics, but also because their decisions are more predictable. Fed officials explain how to change interest rate policies if economic conditions change.

If the FED was more affected by politics, it would be more difficult for financial markets to foresee or understand their decisions.

Earlier this year, the Supreme Court claimed that a president could not shoot the President of the FED because he did not like the policy elections of the President. However, it can typically remove it for “reason ılan which is interpreted to mean some kind of injustice or neglect.

A possible reason for the Trump administration to reset in building renovation, hoping that it can provide an excuse for “why”. Nevertheless, Powell probably struggles with any attempt to remove it, and the case may be in the high court.