Tue, 26 Aug 2025

Tue, 26 Aug 2025 Trump vs the Fed: Why this row could rattle the US economy

Trump says he will sack a US central bank governor. Why does the independence of the Fed matter?
Fed Governor Lisa Cook Defies Trump's Sacking Threat, Vows Legal Action Donald Trump has announced plans to fire Federal Reserve Governor Lisa Cook, but she insists she won't be leaving her post and is prepared to take legal action. This unprecedented move has raised questions about the independence of the US central bank. For months, Trump has been putting pressure on the Fed to cut interest rates, which he believes will boost the economy and make borrowing cheaper for the government. However, economists warn that intervening in monetary policy can be risky, leading to rising inflation, market instability, and higher costs for borrowers. Trump's attack on the Fed is not new; presidential spats with the central bank date back decades, including an infamous incident involving President Lyndon Johnson in the 1960s. What's different now is Trump's desire to replace the entire Fed board with people who share his political views. The Federal Reserve has been an independent institution since its creation in 1913, allowing it to raise or lower interest rates without congressional approval. This independence is seen as crucial in moments like this, when politicians may try to implement policies that could harm the economy. Global investors rely on the Fed's credibility, and if they start to doubt it, borrowing costs for the US government could rise, affecting markets worldwide. Financial markets have so far reacted calmly to Trump's threats, but economists warn that a change in sentiment could happen quickly. The incident has sparked concerns about the stability of the global financial system and the independence of central banks.
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