Banks: Trump’s power struggle with the FED – does the officer have to go?

US President Donald Trump escalates in power struggle with the US Federal Reserve (FED). The Republican takes an extremely unusual step – he intervenes in the personnel policy of the independent board. Fed board member Lisa Cook will be released from office with immediate effect, the Republican announced on his Truth Social Platform. The economist defends herself: Trump is not authorized at all.

The US Federal Reserve is of great importance worldwide. The Central Bank of the United States is aimed at contributing to the US financial stability. The FED determines interest rates, for example, which has a major impact on loan costs. The effects can also be felt in Germany – for economic growth and on the financial markets in the euro area.

The question of independence

The dispute between Trump and the FED is also about the question of how independently the bank can act and how many attempts a government undertakes to influence. Investors fear for independence. After Trump’s announcement to release Cook with immediate effect from her office, the stock markets gave up, while investors were looking for safe ports such as gold.

Trump has actually had a completely different person of the Fed on the Kieker for a long time: he repeatedly insulted Fed boss Jerome Powell and put him under continuous pressure to lower interest. The US President put it on the formula that Americans could no longer finance themselves because of Powell’s course. A fight for the narrative has flared up. Powell stood up to date.

In response to the defended interest reductions, Trump repeatedly called for Powell’s resignation – although it is still unclear whether he can actually fire it. Legally, it is not finally checked whether a president may dismiss the central bank manager. The fact that Trump is now aiming for a colleague Powells on the Fed board could also understand the central bank boss as a warning shot in his direction.

In view of weaknesses on the labor market and a more moderate inflation, Powell recently considered interest reductions to be appropriate. On the one hand, the job market weakened significantly and thereby mountains downwards, he had said days ago. At the same time, inflation is largely under control. As usual, Powell did not call a specific time for any interest reduction, it seems possible in September.

Interest cuts usually boost the economy, since companies and households can then borrow cheaper money. In addition, falling interest rates would be advantageous for the USA in order to cope with increasing public debt. According to economists, interest reductions could heat inflation – also because the consequences of Trump’s customs policy are not foreseeable.

In his letter to the economist, the US President named the reason for his action against FED leadership that there were sufficient reasons to assume that she had given incorrect information in one or more mortgage contracts. The German press agency asked the FED for a statement that was initially failing to materialize at the time as of Tuesday morning (local time).

A president can only dismiss central bank governors by law if there are sufficient reasons. Cook made it clear that she wanted to fight for her post. “The President stated that I” fire “with reasons, while legally there are no reasons – and he has no powers of attending this,” said a statement by her law firm, who, among other things, spread the Bloomberg financial service and the website “Axios”. She will continue to take office. Cook can apply for the restoration of your mandate in court.

Trump had indicated the step

Even days ago, the US President Cook wanted to get rid of. When asked by a journalist, whether he would fire her, he said: “Yes, I will fire her if she doesn’t go back.” Cook had recently headed the headlines due to allegations about irregularities when taking out real estate loans. The head of the state finance authority had contacted US Justice Minister Pam Bondi in a letter and addressed the allegations in it. Among other things, it was about supposedly incorrect information about your residence.

Trump’s US Minister of Trade Howard Lutnick told the TV station CNBC: If Cook committed mortgage fraud, she should go. Then she doesn’t deserve to be there.

Cook’s tenure actually until 2038

The economist has been a member of the FED board since May 2022. This consists of seven members. According to Fed, Cook’s term of office actually runs until January 31, 2038. Before her appointment, she worked as a professor of economics and international relationships at the Michigan State University.