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Trump plans to exert control over the U.S. Federal Reserve's operations.

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During Trump's initial term, he designated Jerome Powell as the Federal Reserve's chief. Yet, Trump...
During Trump's initial term, he designated Jerome Powell as the Federal Reserve's chief. Yet, Trump voiced dissatisfaction with Powell's autonomous leadership style shortly afterward.

The Fed's Last Stand: How Trump's Clash with the Central Bank Could Rock Economies Worldwide

Trump plans to exert control over the U.S. Federal Reserve's operations.

Warning Signs and Fires Blazing The Fed has been standing as a beacon of economic reason in the political chaos fueled by Donald Trump. Much like elite universities, courts, and agencies, the US President is determined to subdue the central bank, unleashing a potential storm that could shatter the US economy and ignite a global financial conflagration.

Last week, the showdown unfolded as Trump requested a meeting with Fed Chair Jerome Powell. His demands couldn't have been clearer: Drop interest rates. Yet, Powell remained resolute, refusing to succumb to Trump's pressure.

On the Record: Powell Firmly Stands His Ground In response, Powell sent a clear message: He communicated that there had been no discussions regarding monetary policy with Trump. Interest rate decisions, he maintained, are made based on careful, objective, and non-political factors – as required by law.

Make no mistake – the fact that the Fed Chair has to emphatically emphasize the obvious indicates a worrying state of affairs. For months, Trump has been entangling the Fed in his political games, attempting to subdue the institution just as he has with the judiciary, the regulatory bodies, and the universities. But this time, the Fed shows no signs of giving in, standing firm against Trump's barrages of decrees and legal violations.

The Stakes are High: Boom or Bust?

Independence has always been a cornerstone of central banks in democratic countries. The decisions of the US Federal Reserve determine the success or failure of trillions of dollars' worth of corporate interests, profits, the dollar exchange rate, growth, inflation, and job creation. Consequently, the Fed sets interest rates based on economic data instead of serving the short-term interests of individuals – to keep inflation low and employment high in the long run.

Trump wants to change that. He desires the Fed to simply print money on command, supplying growth and jobs to boost his image. This goal is not new to American politics – several presidents have wished for such control over the years. But Trump's proposed actions could be far more damaging, as he seeks to officially secure the right to influence monetary policy.

Trump's Tools of Power

So how does Trump plan to bend the Fed to his will? By applying pressure from all angles, of course. One strategy is to relentlessly attack Powell in public, hoping to wear him down. Trump has already employed this method against disliked judges, agency chiefs, and political foes. But Powell has displayed remarkable resilience thus far, much like FBI Director Christopher Wray, who resigned before Trump's inauguration in anticipation of such attacks.

Trump also has legal maneuvers at his disposal. The president has repeatedly hinted at the possibility of firing Powell outright. But doing so could be difficult due to the flimsy legal grounds for dismissing a Fed chairman. The Supreme Court has established the Fed as a unique and semi-private institution deserving special protection, indicating that it would likely block any attempts by Trump to fire Powell overtly.

The Future: An Uncertain Path

In order to circumvent the legal challenges, Trump's team has reportedly considered a range of creative solutions. For example, they have considered allowing Trump to participate in interest rate decisions while maintaining an unofficial role on the Fed's board of governors. Alternatively, they have explored the possibility of appointing a shadow Fed chair. The ultimate goal is simple: remove Powell from the decision-making process and install someone more amenable to Trump's demands.

The damage to the Fed's credibility has already begun as a result of these attacks. The growing uncertainty about future monetary policy decisions could negatively impact investments and consumption, leading to a potential downturn in the US economy. The consequences could be catastrophic for both the US and the global economy.

In fact, "Euronews" cites a London investment analyst stating, "If Powell were fired, it would trigger the most dramatic flight from US assets imaginable. The role of the dollar as the world's reserve currency would be gone, along with the function of US Treasury bonds as a safe haven – both likely permanently."

Germany will not be immune to these repercussions. The Bundesbank currently holds a significant portion of its gold reserves with the Fed in New York. Trump's unpredictability raises concerns about potential aggressive maneuvers involving foreign gold reserves. As CSU MEP Markus Ferber warns, "You can't rule out that Trump might come up with creative ideas for dealing with foreign gold reserves."

Stay tuned for more updates as this tense situation unfolds.

Enrichment Data:Overall:If President Trump seeks substantial influence over the Federal Reserve's monetary policy decisions, several potential outcomes could emerge:

  1. Economic Growth vs. Inflation:
  2. Boost to Economic Growth: Lower interest rates can stimulate economic growth by making borrowing less expensive, which can in turn lead to increased consumer spending and investment.
  3. Risk of Inflation: However, loweringinterest rates too aggressively while the economy is already strong could result in higher inflation, as more money chases after fewer goods and services.
  4. Independence of the Fed:
  5. Erosion of Independence: If the Fed is viewed as being heavily influenced by political pressure, it could undermine its independence and credibility, potentially sowing doubt about its ability to manage inflation and stabilize the economy during crises.
  6. Market Volatility: Such a lack of independence could also lead to market volatility, as investors might question the Fed's long-term stability and commitment to its dual mandate (price stability and maximum employment).
  7. Global Economic Impact:
  8. Currency Fluctuations: A sudden change in U.S. monetary policy could trigger fluctuations in the United States dollar's value relative to other currencies, impacting international trade and investment.
  9. Global Economic Stability: The U.S. economy is a critical component of the global economy. Any drastic changes in U.S. monetary policy could have ripple effects on global economic stability and growth.
  10. Political and Social Consequences:
  11. Political Backlash: Efforts to control the Fed could result in political backlash, as they might be seen as an overreach of executive power and a threat to the central bank's independence.
  12. Public Perception: The general public may view Trump's actions as politically motivated rather than economically sound, which could negatively impact public trust in both the administration and the Fed.
  13. The unprecedented political pressure exerted on the US Federal Reserve by President Trump has raised concerns about the stability of the economic and monetary union within EC countries, as potential shifts in monetary policy could impact global economic and financial markets.
  14. Finance ministers from EC countries are closely monitoring the developments between Trump and the Fed, as a potential erosion of the Fed's independence could have far-reaching consequences for business, politics, and general-news, particularly in terms of monetary policy decision-making within the economic and monetary union.

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