The Showdown Between Trump and the Fed: A Dangerous Path for the U.S. Economy
Trump to assert control over US Federal Reserve's operations
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In a world filled with chaos, the Federal Reserve stands as a beacon of economic stability. However, President Trump, known for his relentless quest for power and control, is aiming to subdue the central bank.
The first meeting between Trump and Fed Chair Jerome Powell didn't go as planned. Trump demanded lower interest rates, pointing to the need for growth and employment to boost his image. Yet, Powell remained unfazed, reiterating that interest rate decisions are made based on objective and non-political factors.
Trump, however, is severe in his pursuit. For months, he's publicly pressured Powell, dubbing him "late Mr. Delay, a total loser." But Powell has shown more resilience than many anticipate. This power struggle is reminiscent of their first encounter during Trump's initial term. Then, too, Trump tried to subdue the Fed, but he faced resistance.
The Impact of Political Interference
The independence of the US central bank is crucial to the global financial system's stability. The US's creditworthiness is already precarious, with a mountain of debt. If the Fed falters, it could deal a severe blow to the US economy and erode trust in the dollar, potentially causing a global financial crash.
Trump is intent on wielding control over the economy. He wants the central bank to print money and deliver growth at the push of a button, a demand that would change the course of monetary policy forever. Many US presidents have tried this tactic, but Trump is the first to formally push for it.
Trump has various strategies to bend Powell to his will. Public pressure, influenced by his aggressive style on Truth Social, is one option. Trump has also flirted with the idea of firing Powell, but his term runs until 2026, and the legalities are vague. The Supreme Court has drawn a red line, considering the Fed a unique institution that should retain its independence.
A Breach of Trust
Under Trump's constant assault, the Fed's credibility is eroding. This uncertainty could deter investments and consumption, leading to economic decline. A global financial panic looms if Powell were fired, and the role of the dollar as the world's reserve currency would be lost, along with the function of US Treasury bonds as a safe haven.
Germany stands to lose more than most; over a third of its gold reserves still reside in the Federal Reserve's high-security vaults in New York. Trump's unpredictability leaves the possibility that he might come up with "creative ideas" for dealing with foreign gold reserves.
Overall, interfering with the Fed's decisions could have detrimental economic consequences, undermine the Fed's independence, and shift focus away from the administration's economic policies.
[1] (https://www.forbes.com/sites/sch difficultiescommerce/2019/08/27/understanding-the-impact-of-monetary-policy-on-the-us-economy/)[2] (https://www.investopedia.com/terms/b/banker-bill-conundrum.asp)
- Monetary Policy
- Donald Trump
- Fed
- Jerome Powell
- Gold Reserves
- Global Financial System
- The political interference from Donald Trump in the Federal Reserve's monetary policy, particularly his constant pressure on Jerome Powell, poses a significant threat to the economic and monetary union of EC countries, as the US's creditworthiness and global financial system's stability hinge on the independence of the US central bank.
- In the realm of business and finance, Trump's relentless attempt to control the Fed and manipulate monetary policy could disrupt policy-and-legislation and shake the foundations of economic and monetary union, potentially leading to a global financial crisis.
- Trump's unorthodox methods, such as public pressure and the threat of firing Jerome Powell, reflect a dangerous intrusion into politics, eroding the Fed's credibility and potentially undermining the role of the US as a trusted financial power, with far-reaching impacts on general-news and international relations.
