After Trump dismisses Lisa Cook, the independence of the Federal Reserve is in jeopardy: Trump hopes to gain more control

Last Monday, Trump attempted to dismiss Lisa Cook, the first black woman appointed to the Federal Reserve's seven member management committee. This is also the first time in the 112 year history of the Federal Reserve that a US president has attempted to dismiss a president. Trump stated that he did so because one of his appointees made allegations that she had committed mortgage fraud. Cook argued in a lawsuit attempting to prevent her dismissal that these claims were excuses for Trump's true goal, which is to gain more control over the Federal Reserve. The court may decide next week whether to temporarily block Cook's dismissal while the case enters legal proceedings.

US President Donald Trump's attempt to hire Federal Reserve Board members has raised concerns among economists and legal experts, who believe it is the biggest threat to the Fed's independence in decades. They said that if the White House successfully pushes the Federal Reserve to quickly cut interest rates, you may see a reduction in borrowing costs in a very short period of time, but later investors may expect higher inflation, which could push up long-term costs such as mortgages, car loans, and business loans.

Trump and his administration members have made no secret of their desire to exert more control over the Federal Reserve. Trump has repeatedly demanded that the central bank lower the key interest rate from the current level of 1.3% to 4.3%. Before attempting to fire Cook, Trump repeatedly attacked Federal Reserve Chairman Jerome Powell for not cutting interest rates and threatened to fire him. Douglas Elmendorf, an economist at Harvard University and former director of the nonpartisan Congressional Budget Office, said that Trump's demand for the Federal Reserve to cut key interest rates by 3 percentage points would overstimulate the economy, raise consumer demand above what the economy can produce, and push up inflation. If the Federal Reserve falls under the control of the President, we may ultimately see the country's inflation rate increase in the coming years, "said Elmendorf.

Although the Federal Reserve controls short-term interest rates, financial markets determine the long-term borrowing costs of mortgages and other loans. If investors are concerned that inflation will remain high, they will demand an increase in government bond yields, thereby pushing up the borrowing costs of the entire economy. Trump also believes that the Federal Reserve should lower interest rates so that the federal government can more easily fund its massive debt burden of $37 trillion. However, this may distract the Federal Reserve's attention from Congress' task of maintaining low inflation and low unemployment rates.

The Federal Reserve has always been politically independent, striving not to participate in political infighting when making professional and neutral monetary policies. Trump's impeachment will undoubtedly break through this political and economic barrier of independence. The replacement of general Federal Reserve personnel should be based on professional knowledge, understanding of the economic situation, and the effectiveness of monetary policy formulation, rather than political games. Politicians can easily decide on the appointment and removal of Federal Reserve personnel, so in the future, there will inevitably be political interference when making monetary decisions in the United States, which may result in the loss of its independence.

Meanwhile, the independence of the Federal Reserve is the cornerstone of financial market stability. Market investors allocate assets and arrange economic activities based on their judgment of the Federal Reserve as an independent and professional monetary policy maker. If Trump's impeachment of Cook is discovered by the market, it will pose a threat to the independence of the Federal Reserve. This will greatly affect market confidence, and investors will worry that the Federal Reserve's policies will become unstable or unreasonable due to political considerations in the future. This will have an impact on the US financial market, with increased volatility in stock and bond markets, increased risk of capital flight, and stability issues arising from the development of the US economy.

In summary, Trump's removal of Lisa Cook from her position will pose a great threat to the independence of the Federal Reserve, whether in terms of political intervention, policy continuity, or market stability. If not properly guided and constrained, it is highly likely to have a serious impact on the US and even the world economic and financial system.