Donald Trump’s attempt to influence the US Federal Reserve could pose a “very serious danger” for the world economy, the head of the European Central Bank has warned.
Christine Lagarde, the president of the ECB, said Trump undermining the independence of the world’s most powerful central bank would have an impact for the US and other countries.
Steps by the US president to remove the Fed chair, Jerome Powell, or the governor Lisa Cook would be a “very serious danger for the US economy and the world economy,” Lagarde told the French broadcaster Radio Classique.
“If US monetary policy were no longer independent and instead dependent on the dictates of this or that person, then I believe that the effect on the balance of the American economy could, as a result of the effects this would have around the world, be very worrying, because it is the largest economy in the world,” she said, according to remarks reported by Reuters.
Trump has repeatedly criticised Powell for not cutting interest rates and has threatened to fire him. He is also attempting to remove Cook, who is appealing against the decision in a case that could reach the US supreme court.
In court on Friday, lawyers for Cook argued she could not be fired without the notice or “cause” required to remove a Fed governor. She learned of her attempted removal via a post on social media, they said.
Firing Cook, whose term is not due to expire until 2038, would enable Trump to nominate a replacement. However, Cook has argued the president has “no authority” to remove her.
Leading investors and economists have said political interference damages the credibility of central banks to keep inflation under control. US government borrowing costs have risen in recent months amid concern over the impact Trump’s tariff policies could have and questions over Fed independence.
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Lagarde said it would be “very difficult” for Trump to take control of Fed decision-making on interest rates. “The US supreme court, which is largely respected in the country and therefore I hope will be respected by [Trump] as well, has clearly indicated that a Fed governor can only be dismissed in the case of gross misconduct.”
Trump received backing for his assault on the Fed last week from Liz Truss, the shortest-serving British prime minister in history, who was ousted after a meltdown in the financial markets.
