Why this row could rattle the US economy

Donald Trump said he had dismissed Federal Reserve Governor Lisa Cook.

He says he doesn’t go anywhere and threatens legal proceedings.

Nobody knows exactly how this will emerge or whether it is in the US Supreme Court.

What is clear is that it is extremely unusual – and reveals serious questions about the independence of the central bank of America.

The US President has been pressing on the federal reserve for months and demanding interest rates to make an increase in the US economy and make the government borrowed cheaper.

He again again targeted the Fed President Jay Powell and called him everything from “too late” to “Numbskull”.

Dramatic – but not completely new. The Fed and the Presidency dates back to decades. In the 1960s, President Lyndon Johnson pushed the FED chair towards a wall during a discussion on proportions.

Now, Trump, which is now different, does not only attack Powell – he wants to shake the entire FED board of directors and to change him with people who share his political perspective. This is what sets aside economists and investors.

Federal reserve – or only “Fed” – since 1913.

Since the late 1970s, it had two main objectives: keeping prices constant and helping as many Americans as possible.

Most importantly, independent. This means that even if the politicians upset, the congress or the president may increase or reduce interest rates without the need for approval.

As Economist Claudia Sahm said, political leaders are for such moments when they want policies such as higher tariffs that can reduce growth and increase inflation.

It may be risky to allow politics to direct monetary policy.

Reducing interest rates may feel good at first – a kind of economic sugar in a hurry.

However, over time, increasing inflation, market instability and higher costs for debtors.

In 2010, Bernanke, the president, then warned that the political intervention could create a damaging “explosion and bust” cycles and make it difficult to control inflation.

And this is not just a domestic problem.

Global investors rely on the Fed and US treasury bonds as a financial secure shelter.

If they start to doubt the reliability of the Fed, borrowing costs for the US government may rise and this will have worldwide effects because they are used to determine the price of beings in the world.

So far, the financial markets seems to be taking Trump’s latest threats in their steps.

But this can change quickly.

The Fed’s ability to move independently has long been seen as the cornerstone of economic stability in the United States.

Now fear is that this norm – like others – may be under the risk of being put aside.