Home World News Developed Economies Trump’s Push for a Stronger Role in US Monetary Policy Raises Concerns...

Trump’s Push for a Stronger Role in US Monetary Policy Raises Concerns About Central Bank Independence

0
US President Donald Trump speaks at a news conference at the White House in Washington, DC, USA, 30 July 30 2020. EPA/YURI GRIPAS / POOL

In August, Donald Trump made headlines by announcing his intention, if re-elected, to amend the Federal Reserve Act, seeking to increase the president’s influence over U.S. monetary policymaking.

With Trump now poised to return to the White House, questions are mounting about whether central-bank independence could come under fire once again.

Trump’s critique of the Federal Reserve has been a constant feature of his political rhetoric. When out of office, he argued that the Fed had been too slow to raise interest rates to combat inflation. Now, as president-elect, he claims the opposite—that the Fed’s rate cuts are proceeding too slowly. Trump has consistently relied on what he describes as his “better instinct” over the expertise of the central bank’s leadership.

A key element of Trump’s push for greater control over monetary policy is his desire to replace Jerome Powell, the current Fed chair whom he appointed in 2017. Trump has made no secret of his dissatisfaction with Powell, stating that he would fire the chairman if given the chance. However, Powell has made it clear that the president cannot legally remove him from office unless there is “cause,” which he argues does not apply to policy disagreements. Yet, Trump’s public pressure on Powell persists, and his chances of success have grown now that the Republicans control both the Senate and the House of Representatives.

While Trump may not be able to remove Powell outright, he will likely have the opportunity to appoint the next Fed chair when Powell’s term ends in 2026. Given Trump’s early cabinet picks, it seems likely that he will select a loyalist who aligns with his economic agenda. This raises concerns about the potential erosion of the Federal Reserve’s independence.

Historically, central-bank independence has been crucial to ensuring price stability and fostering long-term economic health. The 1970s offer a stark reminder of the consequences of undermining central-bank autonomy. Under pressure from President Richard Nixon, the Fed lowered interest rates to help secure his re-election, exacerbating inflation and contributing to the stagflation crisis that plagued the decade. It wasn’t until the early 1980s, when Fed Chair Paul Volcker raised rates to 20%, that inflation was brought under control.

Though Powell has signaled he will resist political pressures, the vagueness of the Federal Reserve Act regarding the president’s power to remove the Fed chair raises concerns. While “for cause” removal is the legal standard, the interpretation of this clause could lead to a protracted legal battle, potentially creating a period of uncertainty for financial markets. A legal challenge to any attempt by Trump to remove Powell or to revise the Federal Reserve Act could further destabilize markets, given the time it would take to resolve.

The prospect of Trump’s meddling with the Fed’s independence should be a source of concern for all. The potential consequences of weakening the central bank’s autonomy could be far-reaching, not just for the U.S. economy, but for global markets as well.

As Trump’s return to power grows more likely, the question remains: will his economic advisers urge caution? Given the damage that a disruption of the Fed’s autonomy could cause, it is crucial for Trump to consider whether his aggressive stance on interest rates is politically and economically viable, or whether it might backfire. With a new rate-cutting cycle already underway under Powell, Trump may find that waiting for Powell’s term to end might be the most prudent path forward.

In the coming years, the U.S. and global economies will likely experience a monetary roller-coaster, with uncertainty surrounding Trump’s stance on central-bank policy. The lessons of history remain clear: central-bank independence is a cornerstone of economic stability, and its erosion could have severe consequences.

Send your news stories to newsghana101@gmail.com Follow News Ghana on Google News

error: Content is protected !!
WP Radio
WP Radio
OFFLINE LIVE
Exit mobile version