Politics
The federal reserve should resist Trump pressure and defend its independence, say the experts
![The federal reserve should resist Trump pressure and defend its independence, say the experts The federal reserve should resist Trump pressure and defend its independence, say the experts](https://assets2.cbsnewsstatic.com/hub/i/r/2017/11/02/fd17cf21-81d5-4155-9ada-c419adc81b1c/thumbnail/1200x630/cfd166405f85771fb37922cd0c841304/gettyimages-869477288-2.jpg?v=a599723035d2f104d7a2d01edbe96ef8)
To which to expect the first political meeting of the Federal Reserve of 2025
To which to expect the first political meeting of the Federal Reserve of 2025 03:13
President Trump had a message last week for the federal reserve when he was during the annual gathering of the World Economic Forum in Davos, Switzerland: he plans to “demand that interest rates drop immediately”.
Mr. Trump can be disappointed. The federal reserve was largely expected to maintain its stable reference rate when it announces its last interest rate decision today at 2 p.m. Eastern time. Economists do not break in a reduction from 2025 until at least May, according to economists interviewed by Factor Sage Factset.
The president of the Federal Reserve, Jerome Powell, firmly defended the independence of the Central Bank. More recently, he underlined during a New York Times event in December that the Fed isolation of political influence is “for the benefit of all Americans”, allowing him to make decisions based on economic data rather than at the request of elected officials. The independence of the Fed allows it to continue its double mandate – to maintain low inflation and the labor market for full employment – without political pressure, economists agree.
“We know that monetary policy must be promulgated with a democratic mandate that underpins it, with a daily withdrawal from politics,” Brett House, professor of economics at the Columbia Business School, told CBS Moneywatch. “Interest rates may have to be increased, but it can be embarrassing for political interests, and [the central bank] may need to go quickly to reduced rates “in the event of an economic slowdown.
Although the Fed is an independent agency, it is responsible for the congress and the public, with its president and other officials regularly testifying before the congress. Its double mandate was also created by the Congress, as well as its structure of appointments staggered for the officials of the Fed, designed to make the agency less vulnerable to pressures “which could lead to unwanted results”, according to the Fed.
What happens when a central bank is not independent?
These “undesirable results” can be seen in countries where central bankers are more vulnerable to political influence, according to economists.
Indeed, interest rates remain the most powerful weapon that a central bank can exert an increase in inflation – a tool towards which the federal reserve turned in 2022 to tame the hottest American inflation in 40 years. But elected officials sometimes decide that higher borrowing costs are politically annoying because they make companies more expensive to develop or for consumers to make purchases.
In cases where a central bank is not independent, managers may succeed in putting pressure on a central bank to maintain a lid at rates.
Experts underline Turkey as an example of what can happen when political interests dictate the monetary policies of a central bank. Since 2010, its central bank has been increasingly under pressure from President Erdoğan to maintain its low interest rates, even if inflation has increased during the pandemic, according to the non -supporting center for economic policies.
Instead of hiking rates while the Turkey inflation rate exceeded 80% in October 2022 on an annual basis, the country's central bank reduced its reference rate several times in 2022 and 2023. While The bank reversed the price and increase rates from mid-2023, inflation has proven to be difficult to tame, prices increasing by 44% in December 2024.
In comparison, the highest American inflation rate during the post-pandemic period took place in June 2022, when inflation reached 9.1% on an annual basis in June 2022. Faced with increases in From the FED, inflation has since then been cooled, to degonly 2.9 % on an annual basis last month.
“The Fed has successfully successfully increased the prices to try to slowly get the inflation of the market,” noted Erasmus Kersting, professor of economics at the University of Villanova. The Fed has “done all this by avoiding a recession – it is a delicate thread needle”.
Could Trump influence the Fed?
Questions about Trump's ability to influence the federal reserve or to shake off his leaders intensify in the midst of the president's statements about his desire to reduce interest rates. During his electoral campaign in 2024, Trump insisted on the fact that as president, he had to have a “say” in the interest rate policies of the Fed.
“I think that, in my case, I made a lot of money, I was very successful, and I think that I have a better instinct than, in many cases, people who would be on the reserve Federal or the president, “MM Trump said in August.
For his part, Powell said last year that he would not resign even if Mr. Trump would not have him to do so, adding that, under the law, the presidents cannot dismiss or retrograde the president of the Fed. Powell's mandate as president of the Fed ends on May 15, 2026.
However, Trump recently dismissed several government officials in a manner who, according to criticism, violated the law, such as the dismissal of his administration of more than a dozen general federal inspectors on Friday. Federal law obliges the White House to give the congress a full month of warning and specific details in case before dismissing a federal inspector general.
The abolition of Powell would not necessarily modify the decisions of monetary policy of the Fed, since the rates are set by the Federal Open Market Committee of 12 people (FOMC). Seven members come from the Council of Governors of the Fed; Four are allocated to the 11 presidents of Reserve Bank, who serve each one of the one -year mandates on a rotating basis; And a member of the FOMC is the president of the Federal Reserve Bank of New York.
Interfere with the Fed could have consequences, both legally and for the stock market, said experts.
“If a president tried to dismiss the president of the federal reserve without any reason than to do the work that they were appointed and confirmed, I expect that there are rapid legal challenges,” noted Tim Stretton During the Government Surveillance Project, a non -supporter of the Government Dog. “I suspect that the market would also react negatively. Markets like stability, and this unprecedented level of interference in the federal reserve would be anything but stable.”
Asked what advice he would give to Mr. Trump about the fight against the Fed, the house of the Columbia Business School said: “Stop talking”.
He added: “Let the Fed carry out his activities in accordance with his mandate, and he will be more likely to reduce interest rates.”
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