He has spoken out about the pressure that the president of the United States, Donald Trump, is exerting to undertake a more aggressive reduction in interest rates.
“Safeguarding the independence of the central bank is essential for macrofinancial stability. Once credibility is eroded, restoring expectations often requires a prolonged period of restrictive monetary policy and high interest rates, which is more costly than preventing the loss of credibility in the first place,” highlights the report on the World Economic Outlook (WEO, in its acronym in English) published this Tuesday within the framework of the annual Assembly of the IMF and the World Bank.
Trump is here to lower interest rates faster. It seeks to spur an economy that is beginning to show symptoms of slowdown. The Republican has repeatedly insulted Jerome Powell, the president of the institution that acts as the central bank of the United States, pressuring him, without success, to resign. And has issued an unsigned dismissal order c. He has accused her without evidence of financial fraud because she supposedly requested a mortgage on advantageous conditions, claiming that it was for her first home. She has insistently denied irregularities and no court has investigated the case. The institution’s strict rules have, for now, protected the FED from Trump’s meddling. But the man who made his fortune through real estate speculation has taken the case to court to try to get a majority in the body that decides on the price of money.
Cook has also taken the unjustified dismissal to the courts, which have ruled in his favor. But the Trump Executive has reacted by elevating the case to the Supreme Court, which has postponed deliberations for several weeks.
Cook also has the support of all the former presidents of the Federal Reserve and several hundred top-level economists, who have submitted to the courts a lengthy dossier with studies that show the risks to the economy of interference in the central bank.
In the middle, the IMF reminds that “risks are amplified when fiscal dominance pressures arise, when high public financing needs interfere with monetary decisions.” And he continues: “Trying to influence the central bank to keep monetary policy rates low or tolerate surprise inflation may seem like a way to alleviate short-term fiscal arithmetic, but in the end it is counterproductive.”
The Fund’s economists do not expressly mention the case of the FED in the Global Perspectives Reportbut the wording of the report fits perfectly with the situation of the US central bank.
The Fund since 2000 and concludes that such interference “makes policy more flexible, weakens currencies, and raises inflation and inflation expectations, with some medium-term activity gains occurring at the expense of significant deviations from price stability.”
“More broadly,” continues the Washington-based institution, “across the entire policy ecosystem: fiscal frameworks, financial oversight, competition and insolvency regimes, the judiciary and, crucially, national statistical systems.”
The Fund gives the Republican president another slap on the wrist for firing the official responsible for labor statistics. “High-quality, timely, and professionally independent data are a public good: they reduce uncertainty and improve private sector planning and policy design,” highlights the IMF. “In contrast, poor data governance (coverage gaps, opaque methodologies, infrequent publication, or politically influenced reviews) undermines accountability and reduces policy effectiveness.”
Labor data is essential to the Federal Reserve’s judgment on the appropriateness of moving rates. Trump fired Erika McEntarfer, head of the Bureau of Labor Statistics (BLS), in early August, shortly after weaker-than-expected employment data was released. The Oval Office tenant then published on his social network, Truth, that the statistics had been manipulated to make him look bad.
The Fund recalls that “best practices combine legal and operational safeguards for central banks with strong supporting institutions. Key elements, supported by the Constitution, statutes and jurisprudence, include budgetary autonomy, the ability to set monetary policy without interference and the prohibition of direct short- and long-term loans to the government.”
