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5h ago

Trump’s Pressure on the Fed Tests Central Bank Independence

Markets signaled unease with higher Treasury yields after threats toward a Fed governor.

The exterior of the Federal Reserve building is seen in Washington, D.C., U.S., June 14, 2022. REUTERS/Sarah Silbiger/File Photo
The tower of the headquarters of the Bank for International Settlements (BIS) is seen in Basel, Switzerland, March 18, 2021. REUTERS/Arnd Wiegmann/File Photo

Overview

  • Reuters reports that President Trump threatened to dismiss Fed Governor Lisa Cook over alleged mortgage-related improprieties and has pressed Chair Jerome Powell to cut rates.
  • Central bankers around the world voiced concern that political encroachment could weaken the autonomy that underpins low and stable inflation.
  • Investors demanded a higher premium on U.S. government debt after Trump’s comment about sacking Cook, with the 10-year yield up 2.5 basis points to 4.30% on Tuesday.
  • Research cited from the Centre for Economic Policy Research links full legal independence to sizable long-run inflation reductions, including about 3.7 percentage points in rich countries.
  • Economists note that crisis-era asset purchases highlighted central banks’ financial power, which may be fueling renewed political efforts to assert control.