Trump vs the Fed: Why This Clash Could Shake the US Economy
President Trump’s bid to remove Fed Governor Lisa Cook has sparked legal threats and raised concerns about the Federal Reserve’s independence and its impact on inflation, borrowing costs, and global markets.
President Donald Trump has announced plans to remove Fed Governor Lisa Cook, who has vowed to stay on and may pursue legal action. The unprecedented move raises questions about the Federal Reserve’s independence and could have far-reaching effects on the economy.
Why Trump is clashing with the Fed
For months, the president has pressured the Fed for interest rate cuts to stimulate growth and lower government borrowing costs. He has repeatedly criticized Chair Jay Powell with nicknames and demands for faster action. Historically, presidents have sparred with the Fed, but Trump’s push to replace multiple board members with political allies has unsettled economists and investors.
A brief look at the Fed
Founded in 1913, the Federal Reserve aims to maintain stable prices and maximum employment. It operates independently, setting rates without needing congressional or presidential approval—even if its decisions prove unpopular with politicians. Economist Claudia Sahm argues that this independence shields monetary policy from short-term political pressures that could inflate prices.
Why independence matters
Political interference in monetary policy can lead to rising inflation, market volatility and higher borrowing costs over time. In 2010, then-Chair Ben Bernanke warned that such meddling risks “boom and bust” cycles and makes inflation harder to control. Global investors rely on the Fed and US Treasury bonds as a safe haven; doubts about the Fed’s credibility could drive up borrowing costs globally.
What happens next?
Markets have so far remained calm, but that could quickly change. The Fed’s ability to act independently has long been a cornerstone of US economic stability. Many fear this norm may be at risk if political pressure continues to intensify.
Trump’s attempt to remove Fed officials threatens the central bank’s long-held independence and could destabilize borrowing costs, inflation expectations, and global markets.
This article was reported by BBC News.
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