The Federal Reserve cut interest rates this week. But the aggressive action Trump seeks could dramatically backfire
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onald Trump has once again taken a wrecking ball to the rule of law and long-standing norms as he seeks to fire Lisa Cook, the Federal Reserve governor, and pursue his unprecedented assault on the central bank’s independence. Just as he failed to understand the huge problems his tariffs would create, Trump fails to understand the serious damage his attacks on the Federal Reserve could cause.
In April, Trump launched repeated attacks on the Fed, threatening to fire its chairman, Jerome Powell, and demanding it slash interest rates. Trump called Powell “a stupid guy” and said “Powell’s termination cannot come fast enough!” Trump ultimately chickened out on firing Powell after financial markets tumbled at the prospect, but he hasn’t stopped pressing the Fed to chop its rates – suggesting they should be below 1% – to spur the slowing economy. Although Trump keeps denying it, he inherited a robust economy from Joe Biden. It’s Trump’s tariffs and the humongous economic uncertainty they created that have dragged down economic growth.
The reason most central banks worldwide have independence is that lawmakers realized long ago that if presidents or prime ministers control central banks, they will often cut interest rates too aggressively to goose economic growth short-term and lift their popularity. But a few years hence, that often leaves the nation, and their successors, with painfully high inflation.
