What could happen if Fed loses autonomy

If Trump gets a board loyal to him, that may lead to higher inflation, economists say

- BY CHRISTOPHER RUGABER

MARK SCHIEFELBEIN Associated Press FED Chair Jerome Powell and Governor Lisa Cook. Her job is being threatened.

President Trump’s attempt to fire a member of the Federal Reserve’s governing board has raised alarms among economists and legal experts who see it as the biggest threat to the central bank’s independence in decades.

The consequences could affect most Americans’ everyday lives: Economists worry that if Trump gets what he wants — a loyal Fed that sharply cuts short-term interest rates — the result would probably be higher inflation and, over time, higher borrowing costs for things like mortgages, car loans and business loans.

Trump last week sought to fire Lisa Cook, the first Black woman appointed to the Fed’s seven-member Board of Governors.

It was the first time in the Fed’s 112-year history that a president has tried to fire a governor.

Trump and members of his administration have made no secret about their desire to exert more control over the Fed.

Trump has repeatedly demanded that the central bank cut its key rate to as low as 1.3%, from its current level of 4.3%.

Before trying to fire Cook, Trump repeatedly attacked the Fed’s chair, Jerome Powell, for not cutting the short-term interest rate and threatened to fire him as well.

“We'll have a majority very shortly, so that'll be good,” Trump said Tuesday, a reference to the fact that if he is able to replace Cook, his appointees will control the Fed’s board by a 4-3 vote.

“The particular case of Governor Cook is not as important as what this latest move shows about the escalation in the assaults on the Fed,” said Jon Faust, an economist at Johns Hopkins and former advisor to Powell. “In my view, Fed independence really now hangs by a thread.”

Some economists do think the Fed should cut more quickly, though virtually none agrees with Trump that it should do so by 3 percentage points.