Trump’s attack on the Fed threatens US credibility

Unlock the White House Watch newsletter for free

Your guide to what Trump’s second term means for Washington, business and the world

The writer is a distinguished fellow in residence at the Brookings Institution, former chair of the Federal Reserve and former secretary of the Treasury

US President Donald Trump’s claim that he has “fired” Federal Reserve governor Lisa Cook “for cause” is not only unlawful. It is profoundly dangerous. 

It represents a direct attempt to politicise the Fed, intimidate its leadership and bend monetary policy to the president’s will. This action threatens to end the independence of the Federal Reserve — and with it, the credibility of the US’s monetary policy both at home and abroad.   

The law is clear: Federal Reserve governors serve 14-year terms precisely so they cannot be tossed aside by presidents who dislike their views or who seek their allegiance. Removal “for cause” is intended for documented misconduct. “Accusations” are not “cause”.

Cook has done her job with integrity — weighing evidence and voting for policies designed to achieve the Fed’s dual mandate of price stability and maximum employment. For Trump to invoke cause here is a fiction; it is a pretext to justify an autocratic power grab.

This is not about one Federal Reserve governor. It is about intimidation. By targeting Cook, Trump is sending a chilling message to every member of the Federal Reserve board and to the regional reserve bank presidents who take part in the Federal Open Market Committee: express disagreement with the president’s views and you are next.

Such threats could stifle these Federal Reserve leaders in their duty to offer honest, professional and independent views on monetary policy to the public. It could alter their voting behaviour. It would turn an institution renowned for its independence and strong record of accomplishment into a puppet stage for presidential whims and priorities.  

At the moment, a key Trump administration priority is for the Fed to substantially cut interest rates to reduce the cost of servicing the US government’s $37tn debt. The consequences are likely to be catastrophic.

History offers a blunt lesson: chaos follows when leaders capture their central banks and force them to buy government debt or cut interest rates to hold down debt service expense. Germany in the 1920s, Hungary after the second world war. Likewise, Argentina and Turkey quite recently — the names change, but the story is the same.

Politicised central banks deliver higher inflation, volatile growth and weakened currencies. Such a road cannot be good for the US. We took this road once before: during the second world war, when the Fed was obliged to hold interest rates down to help the Treasury finance the war. The result was high inflation.

In 1951, the Fed and Treasury reached an accord. The Federal Reserve thereafter would focus on price stability and maximum employment. Since that time, those have been its objectives, as legally mandated by Congress. 

The Fed’s credibility in crafting a responsible monetary policy underpins global confidence in the dollar and in Treasury securities, which are widely regarded as the world’s safest asset. They underpin the US economy.

If markets believe the Fed’s hand is guided by political orders, every interest rate decision will lose credibility. Inflation expectations could become unmoored. The dollar’s standing as the world’s reserve currency would be imperilled. Investors and allies alike would conclude that the US no longer has an independent central bank.

We would throw away one of our country’s greatest economic assets. And, ironically, this strategy will not even succeed in lowering long-term interest rates. Quite the contrary; long-term interest rates will probably rise due to higher inflation expectations.   

Trump’s attempted sacking of Cook should be met with outrage, not with shrugs. Congress must defend the Fed’s independence. The courts must strike down this unlawful power play. And the financial community must raise its voice against a direct assault on the credibility of the dollar itself.

The independence of the Federal Reserve is not some technocratic nicety. It is the bedrock of US economic stability and global leadership. Trump’s effort to tear it down for personal gain is reckless, corrosive, and profoundly un-American.