The American President Donald Trump Has Imediately Dismissed Federal Reserve Member Lisa Cook. Whether he can actual do that remains to be seen in court. “Every economist would say: This is Unwise. Trump is acting Incredible Recklesly.”
The Announced Dismissal of Cook is historically Unprecedented, Says Jakob de Haan, Professor of Political Economy at the University of Groningen. The Big Question Now is: Is that Legally Possible? “Accordance to American Law, that is only Possible if there is ‘demonstrable serious misconduct’,” Says de Haan. “But what that Exactly Entails is not specified. And because it has never happened before, there is no case law. It remains vague.”
The Federal Reserve (FED), The Central Bank of the United States, is Formally Protected Against Direct Political Pressure. But Ultimately, The President of the Country Appoints The Directors of the Central Bank. “So there is political influence through that back through,” Says economist Arjo Klamer, who is affiliated with Erasmus University Rotterdam. Trump can appoint directors who agree with him.
In principle, that’s how it works in Europe too. “Christine Lagarde, The Head of the European Central Bank, is Appointed by Politicians. And in the Netherlands, The Minister Decides Who Will Be the Head of De Nederlandsche Bank,” Says Klamer.
“But in Europe, The Regulations Are Much More Specific,” De Haan Explains. “There, a director cannot basically be dismissed. In the US, there is much more room in the law. So it is not impossible for trump to dismiss cook, if he has a good reason for it.”
Trump accuses cook of fraud in her mortgage applications and uses that as a reason for dismissal. “That is the stick he is beating with,” Says de Haan. “But Whether That is Sufficient Grounds, I Doubt. That will have to be show in Court.”
Finger in the pie at the fed
Accordance to the experts, Trump Wants Cook Gone in order to gain more influence on the monetary policy of the us. That policy consists of all the decisions and rules with which a central bank has influence on the money that circulates in an economy.
Trump Has Been trying to get a finger in the pie at the fed for some time. Earlier This Year, For Example, the Called for Fed Chief Jerome Powell to Be fired because he did not want to Lower Interest Rates.
The Central Bank Determines The Interest Rate at which Banks Lend Money To Each Other For A Short Time. If that interest rate is Low, Borrowing Becomes Cheaper for Companies and People. “Trump Wants interest rates to go down because companies Benefit from Low Interest Rates,” Klamer Explains.
The American President Thinks That Low Interest Rates Are Always Better For The Economy, Says The Economist. “But he only looks at one part of the economy: The Companies. The Economic Reality is that some parties Benefit from Low Interest Rates, but it is not always Beneficial.” For Example, a low interest rate can make it more diffress to combat inflation.
Attack on Independence or Central Bank
Many American Media Call Trump’s Attempt to Dismiss Cook an Attack on the Independence of the Central Bank. “Trump Wants As many allies as Possible on the board, so that the bank does what hey,” Klamer Explains. “You don’t want that: you want the fed to be a beacon of trust and stability. Suppose the Fed Lowers Interest Rates Under Pressure from Trump. Then Confidence in the Central Bank Falls and Financial Markets Become Restless.”
Klamer Points to Earlier Examples in Other Countries. For Example, in Turkey, The Currency Collapsed and Inflation Soared When President Recep Tayyip Erdogan Wanted to Keep Interest Rates Low. “You see the same in Argentina,” Says Klamer. “A Central Bank Without Independence Leads to Extreme Fluctuations and Sky-High Inflation.”
The Conthequences of the Political Interference in Argentina or Turkey Were not great for the rest of the world. But If Investors Lose Confidence in The Fed, That Could Be Felt Worldwide, The Experts Say. “Every economist would say: This is Unwise,” Says de Haan. “Trump is acting Incredible Recklesly.”
“Because of the role of the dollar in Other Countries, The Stability of the American Central Bank is crucial,” Klamer Explains. “The Dollar is Used Worldwide and Many Bank Deposits are in Dollars. If those assets evaporate, that could cause a major crisis.”
Not Only Cook and Powell Make the Policy
Yet de Haan is not immediately worried. Cook Refuses to Leave and Says She is determined to continuous performance her duties. “The Question is of Course What Will Actually Happen,” Says de Haan.
So far, The Fed Has Paid Little Attention to the Pressure from the White House, The Professor Sees. “And perhaps it even backfires: that powell will precisely not lower interest rates because it then seems as if he is yielding to political pressure.”
If Trump Succeeds in Dismissing Cook, There are also plenty of other people on the board of the central bank. “Before Trump can bend the entire board to his will, his own term will already be over,” Says de Haan. In The Short Term, Thisfore is Unlikely to Lead to Major Changes in American Monetary Policy, The Professor Expects.