Trump’s war against the Fed is a “serious danger” for the world economy

Central Bank independence will affect the US and other countries, says Christine Lagarde, chief of the ECB

Donald Trump’s attempt to influence the US Federal Reserve may pose a “very serious danger” to the world economy, the European Central Bank chief warned.

Christine Lagarde, president of the ECB, said that Trump undermining the independence of the world’s most powerful central bank would have an impact on the US and other countries.

US President’s measures to remove Fed President Jerome Powell, or Governor Lisa Cook would be a “very serious danger to the US economy and the world economy,” Lagarde told French broadcaster Radio Classique.

“If US monetary policy were no longer independent, and instead it depended on the dictates of this or that person, then I believe the effect on the balance of the American economy could, as a result of the effects it would have around the world, be very worrying because it is the largest economy in the world,” she said, according to comments reported by Reuters.

Trump repeatedly criticized Powell for not cutting interest rates and threatened to fire him. He is also trying to dismiss Cook, who is using the decision in a case that can reach the US Supreme Court.

In court on Friday, Cook’s lawyers argued that she was fired without the prior notice or the “cause” needed to remove a governor from the Fed. She learned of the attempt to remove through a publication on social networks, they said.

Dismissing Cook, whose mandate only expires in 2038, would allow Trump to indicate a substitute. But Cook argued that the president “has no authority” to remove it.

Renowned investors and economists say political interference impairs central banks’ credibility to maintain inflation under control. The costs of US government loans have increased in recent months in the midst of concerns about the impact that Trump’s tariff policies could have and questions about Fed’s independence.

Lagarde said it would be “very difficult” for Trump to take control of Fed’s decisions about interest rates. “The US Supreme Court, which is widely respected in the country and, therefore, I hope it will also be respected by [Trump]clearly indicated that a Fed governor can only be fired in case of severe misconduct. ”

“And you would have to go too far to be fired for serious misconduct.”

Trump received support for her Fed attack last week of Liz Truss, British Prime Minister with the slightest term in history, which was deposed after a collapse in the financial markets.

Originally published by The Guardian on 01/08/2025

By Richard Partington – Senior Economics Correspondent