President Trump’s recent actions, including firing fed governor Lisa Cook and attempting to remove Fed Chairman Jerome Powell, have raised concerns about the White House’s control over the nation’s monetary policy. If successful, this illegal act could stack the powerful seven-member board with four MAGA loyalists, giving Trump total control of the Federal Open Market Committee.
The negative repercussions of this unlawful dismissal include shifting monetary policy from the Fed to the White House, calling for an immediate cut in short-term interest rates, and causing a brief sugar high for the economy with a boost in housing activity and a spike in one or more asset classes, such as crypto. This could lead to a bust along the lines of the 2008 Financial Crisis, with world markets losing trust in the White House-dominated Fed and the dollar’s role as the world’s reserve currency.
The Fed’s dual mandate of stable prices and full employment will be a sad joke as it scrambles to carry out political instructions coming from the White House. If Paul Volcker comes along to restore order to the markets and the economy, a replay of the Great Depression is in the cards.
Trump’s attempts at removing Fed Chairman Jerome Powell have also been criticized, with Trump calling Powell every name a poorly educated fifth grader can think of and enlisting a bureaucrat he had recently installed to conjure up fraud accusations against him. The value of the Fed being independent from the demands of an executive is often questioned, as Chairman Powell would steal the show simply by keeping quiet.
As a lawyer, former Fed official, and academic, the author is not offended by Trump’s attacks on the rule of law, financial and regulatory institutions, and universities. However, the author fears the outrage of fellow citizens being muted, which they cannot let happen.
