Nathan Sheets, global chief economist at Citigroup, warned of the danger “if we now cross the Rubicon on central bank independence”, on top of adopting steep tariffs and other policies previously considered unusual for the US.
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“The market volatility that we’ve seen over the past month or so would merely be the first course to a much, much longer and more challenging kind of downturn,” Sheets said on Bloomberg Television.
The risk is “we start seriously and permanently undermining confidence in the economy and the markets,” he said.
Democratic Senator Elizabeth Warren said in a Thursday interview that “the president has free speech just like everyone else, but he does not have the power to fire Jerome Powell. And if he tries, he will crash the markets.”
“Even countries with dictators try to create a central bank that is independent of the president of the country in order to attract capital,” Warren said.
The president’s ability to remove top officials at agencies that had long been viewed as having a measure of independence from the White House has come into acute focus recently after the administration dismissed senior officials at the Federal Trade Commission, the National Labor Relations Board and Merit Systems Protection Board.
Our independence is a matter of law.
US Federal Reserve boss Jerome Powell
The firings are the most direct challenge yet to a 1935 Supreme Court decision that paved the way for agency independence. Powell made reference on Wednesday to a current Supreme Court case with regard to the removal of the NLRB and MSPB officials.
“There’s a Supreme Court case. People will have read probably” about it, Powell said in answering questions at the Economic Club of Chicago. “That’s a case that people are talking about a lot. I don’t think that decision will apply to the Fed — but I don’t know,” he said. “It’s a situation that we’re monitoring carefully.”
Powell also reiterated his argument that “our independence is a matter of law,” and that the Fed’s statute shows that there’s “no removal except for cause.”
Treasury Secretary Scott Bessent earlier this week indicated that the administration’s timeline for considering Powell’s successor was roughly six months away. Speaking in a Bloomberg Television interview, Bessent said that the timing for interviewing candidates to replace Powell was “sometime in the [northern autumn].”
Bessent also said that Fed independence in deciding on monetary policy was a “jewel box that has got to be preserved”.
US consumers want lower prices after 40-year-high inflation.Credit: Bloomberg
The latest broadside from Trump on the Fed recalls criticism he heaped on Powell during the president’s first term, when he repeatedly blasted Powell and his colleagues for not easing policy quickly or strongly enough for his liking.
Trump’s recent moves to ramp up tariffs on the rest of the world have raised concern about slowing domestic growth and price increases, making the Fed’s policymaking all the more challenging. In his speech on Wednesday, Powell reiterated his view that the Fed must ensure the import duties don’t trigger a more persistent rise in inflation.
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“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said.
Trump has argued in favour of lowering borrowing costs – something that might help any businesses looking to boost domestic production behind the new tariff wall the administration is constructing. But most economists see inflation as still too high for policymakers to take that step.
As in his first term, Trump compared the Fed with the European Central Bank, which on Thursday lowered its benchmark rate by a quarter point to 2.25 per cent. His post came just before that anticipated move.
“And yet, ‘Too Late’ Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’ Trump wrote.
“Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now.”
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He added that oil and grocery prices are down, and that the US is “getting RICH” on tariffs.
While crude oil is down well over 10 per cent so far this year, food prices have been climbing. Groceries are up 2.4 per cent over the past 12 months.
Asked about the Fed in her press conference on Thursday, ECB President Christine Lagarde said, “let me just say very squarely that I have a lot of respect for my esteemed colleague and friend Jay Powell”. She also highlighted the history of consultation between the Fed and ECB and pledged that this would continue.
With assistance from Vince Golle, Erik Wasson, Zoe Schneeweiss, Kate Sullivan, Josh Wingrove, Romaine Bostick and Scarlet Fu.
Bloomberg L.P.
