Since arriving at the White House, Donald Trump has methodically sought to remove anyone who threatens to stand in his way, regardless of their position or status. Political opponents, former allies, judges, academics, the media, lawyers and federal civil servants have all suffered as a result. On Monday, August 25, the president of the United States decided to target one of the members of the Federal Reserve's Board of Governors, which is responsible for setting monetary policy in the world's largest economy.
Trump announced the dismissal, "effective immediately," of Lisa Cook, whom he accused of fraud related to a mortgage loan obtained before she took office. This unprecedented decision goes far beyond just another settling of scores. Abruptly removing a Fed governor undermines the independence of the central bank, essential to both American and global economic stability.
Behind the accusations against Cook, who, at this stage, faces no formal charges, is the clear intention to shift the balance of power within the monetary institution and steer its decisions to the wishes of the White House. The departure of the first Black woman ever to serve as a Fed governor would give Trump control of four out of the board's seven seats.
For months, Trump has repeatedly insulted and pressured Jerome Powell, the institution's chair. He has threatened to replace him several times for not lowering interest rates as quickly as he wants. Since 1951, the Board of Governors has functioned as a collegial body independent of the executive branch and has resisted such pressure until now, mainly because of the trade war initiated by the American president, which threatens to reignite inflation.
The Fed's mandate is to maintain price stability while pursuing full employment. Inappropriately cutting interest rates for short-term political gain, contrary to actual economic data, could cause significant damage. By moving in this direction, Trump has dealt a grave blow to the US's credibility.
Over recent decades, the independence of central banks and the predictability of their decisions have contributed to the stability of the international financial system. Undermining that foundation through direct political interference in the Fed's decisions could have far-reaching consequences. Beyond a fall in the dollar, a loss of confidence in the reliability of US monetary policy would increase the risk premium on long-term American debt and make refinancing it more difficult.
An uncertain legal battle now looms to determine whether Trump's power move is lawful. In an opinion issued in May, the Supreme Court ruled that the US president could not dismiss Fed governors except "for cause." The institution's credibility now hinges on how this vague phrase will be interpreted. Unless, that is, the financial markets manage to dissuade Trump from carrying out what most economists see as a dangerous leap into the unknown.
Translation of an original article published in French on lemonde.fr; the publisher may only be liable for the French version.