Donald Trump promised voters he would crush inflation if he returns to the White House.
But economists warn that his unprecedented attacks on the Federal Reserve could do the opposite – fueling inflation and worsening the cost-of-living crisis.
Trump is the first U.S. president to openly attempt to fire a Fed governor, crossing a line meant to protect the central bank’s independence. While presidents have long sought lower borrowing costs to stimulate the economy, the Fed was deliberately designed to operate free from political interference. Experts say undermining that independence is dangerous.
“I feel uncomfortable about this. It seems like another attempt by the president to erode monetary policy independence. And that will lead to worse economic outcomes,” said Narayana Kocherlakota, former Minneapolis Fed president.
The Inflation and Mortgage Rate Risk
Economists point out that pushing the Fed toward artificially low rates risks overheating the economy – the very scenario that causes inflation. Cheap loans encourage more spending, even when demand doesn’t need a boost. That was evident after the pandemic, when inflation surged to 40-year highs.
If investors lose faith in the Fed’s commitment to stable prices, long-term borrowing costs could rise. Mortgage rates, which are influenced by investor confidence rather than the Fed directly, would likely climb higher.
“The more the market thinks the White House is running Fed policy, the higher longer-term rates like mortgage rates will go,” Kocherlakota warned. Mortgage rates already hover near 7%, worsening the housing affordability crisis.
History’s Warning Signs
Past political interference offers stark lessons. President Richard Nixon pressured Fed chair Arthur Burns to keep rates low before the 1972 election, igniting runaway inflation that later topped 13% and ushered in the era of “stagflation.”
More recently, Turkish President Tayyip Erdogan forced his central bank to slash rates, causing the lira to collapse and inflation to soar above 80%.
“History teaches us what can happen when a populist strongman decides to take over a central bank,” said Justin Wolfers, University of Michigan economist.
Breaking Central Banking’s “Cardinal Rule”
Trump’s move to oust Fed Governor Lisa Cook is drawing alarm from former officials. Tim Mahedy, ex-San Francisco Fed advisor, called it “a naked attack on the independence of the Fed.”
“Trump is breaking the cardinal rule of central banking: Criticize, but don’t politicize,” Mahedy added. “He, and all of us, will pay a steep price if he’s successful – a cost that could last for generations.”
Leo Cruz brings sharp insights into the world of politics, offering balanced reporting and analysis on the latest policies, elections, and global political events. With years of experience covering campaigns and interviewing world leaders, Leo ensures readers are always informed and engaged.
