The independence of the United States Federal Reserve (Fed) has been a cornerstone of global economic stability for decades. This principle ensures that decisions on monetary policy are based on economic data, not short-term political cycles. However, Donald Trump’s constant attacks and his declared intention to bring the institution under his political control have set off alarms, creating a scenario with unpredictable consequences for the global economy.
Tension between the White House and the Federal Reserve is not new. Presidents like Lyndon B. Johnson and Richard Nixon also pressured the central bank to influence its decisions. However, Trump’s attacks, especially against his own appointee, Jerome Powell, have reached an unprecedented level of aggression and public visibility. The key difference is the goal: while past efforts sought influence, Trump openly pursues direct control that threatens the Fed’s autonomy.
Historically, the Fed has acted as the “adult in the room,” making unpopular decisions such as raising interest rates to curb inflation, often clashing with a president seeking expansive economic growth to enhance electoral prospects.
Why the obsession with controlling the Fed?
Trump’s motivations are a mix of political strategy and personal economic vision.
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Short-term economic stimulus: Trump directly associates low interest rates with a rising stock market and robust economic growth. From his perspective, the Fed, by raising rates to control inflation, acts as a brake on the economy. Controlling it would allow him to enforce loose monetary policy permanently, aiming for an economic boom he could leverage politically.
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Reducing debt burden: With national debt soaring, lower interest rates would drastically reduce the cost of U.S. government borrowing.
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Transactional view of power: Trump views politics and institutions in terms of personal loyalty. He does not accept a state body that does not answer directly to him. His conflict with the Fed is also a power struggle against an institution he perceives as part of an opposing establishment.
Consequences of a politicized Fed
Economists agree that a loss of Fed independence would be catastrophic, with a global domino effect.
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Loss of credibility and inflation risk: If markets see the Fed as simply obeying the White House, its credibility to fight inflation would collapse. Investors would demand higher yields on U.S. debt, anticipating that the central bank would not act to contain rising prices, potentially triggering a difficult-to-control inflation spiral.
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Market volatility: Uncertainty over monetary policy would generate massive market volatility. Financial markets depend on predictability and data-driven Fed actions. Politicization would introduce chaos and deter investment.
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Weakening of the dollar: The U.S. dollar maintains its status as the world’s primary reserve currency largely due to confidence in the Fed. A politicized institution would erode that trust, prompting other countries to diversify their reserves, weakening the dollar and U.S. financial power.
A dangerous precedent for the world
Trump’s crusade against the Federal Reserve is not just a domestic issue. It challenges the global financial architecture built after World War II and sets a dangerous precedent. If the world’s largest economy subordinates monetary policy to political whims, other countries may follow, increasing instability and the risk of financial crises worldwide. The true cost of this obsession could be the loss of trust, the most valuable asset in the modern economy.
Sources:
- El País: Tropas en Washington y destituciones en la Reserva Federal: Trump abraza la deriva autoritaria en Estados Unidos
- RTVE.es: Reserva Federal de EEUU: Cómo funciona y por qué Trump la presiona
- The Independent en Español: Qué podría significar el fin de la independencia de la Reserva Federal
- Univision: Qué impacto global puede tener la pérdida de independencia de la Fed ante Trump
- El Cato: Los presidentes de la Fed
