Fatshimetrie is losing credibility due to the president-elect’s direct attacks on the Federal Reserve. The question of the continued operation of the Federal Reserve is now being raised, with key players, such as Elon Musk, openly suggesting its abolition. This friction between the government and the central bank is worrying and could jeopardize economic stability.
Calls to abolish the Federal Reserve are not new, but Trump’s recent moves could make them more incisive. The mention of leaving the executive branch under the direction of the president raises questions about the Fed’s independence. Defenders of the central bank worry that any political interference could hamper its effectiveness and undermine the goals of price stability and full employment.
Trump’s promises to lower interest rates could also jeopardize the Fed’s independence. Calls to consult the president on interest rate decisions could push the Fed to act according to Trump’s wishes, rather than focusing on the country’s long-term economic needs. This could potentially lead to pressure to keep rates low, which in turn could rekindle inflation.
Whether Trump has the legal authority to change the Federal Reserve’s independence is controversial, but the Constitution and current law appear to protect the Fed from political interference. Jerome Powell’s recent response to any impeachment attempt underscores the Fed’s resistance to outside intervention.
The current political situation, with a Republican majority in the Senate and a pro-party Supreme Court, may tempt Trump to test the limits of the Fed’s independence. However, recent court decisions in favor of independent regulators suggest that the protection of the Fed’s independence could be maintained despite political pressure.
Ultimately, the battle between Trump and the Federal Reserve highlights the risks to economic stability and the credibility of financial institutions. The outcome of this tug-of-war will have a lasting impact on the U.S. economy and could affect investor and citizen confidence in the integrity of the financial system. It is imperative that political and economic actors find common ground to ensure the long-term stability and prosperity of the American economy.