Trump's central bank move spells disaster

Compromising Fed's credibility would affect global economy

- MUSHTAK PARKER

IMAGINE the leader of a major economy publicly verbally abusing the head of the country’s central bank, calling him a “numbskull”. That is exactly what happened two weeks ago when President Donald Trump called on Jerome ‘Jay’ Powell, Chair of the Federal Reserve (the central bank, or the Fed as it is widely known) to resign.

That torrent of abuse and bullying continues unabated and Trump has even targeted his ire and frustration towards other senior Fed officials, including Lisa Cook, a member of the Board of the Fed.

At the core of the spat between the White House and the Fed is the issue of ‘the independence of the central bank, which is the bane of democratic politicians but which in the US is enshrined in the constitution since its establishment in 1913 on the eve of World War I.

The US as the world’s largest and richest economy is no exception. This spat between politicians on all sides of the spectrum and central bankers is universal. It has reared its head in democratic South Africa where radicals have called for the “nationalisation” of the South African Reserve Bank (SARB) and to force a vital state institution to direct its policies towards the dictates of the elected government in support of realising and delivering on services, jobs, education, housing et al.

Crucially, in the US, the Fed’s independence, backed by the Federal Reserve Act, which places the responsibility for interest rates squarely with the Federal Reserve Board, means it can raise or lower interest rates without needing approval from the US Congress or the President, with a clear mandate to keep prices stable and contain inflation, and to help as many Americans as possible find work thus promoting employment.