Trump’s push to cut interest rates risks politicizing the Fed, JPMorgan warns

JP Morgan’s research notes, according to the president Donald Trump’s Efforts to pressure the Federal Reserve to cut risk undermining central bank independence and could increase the risk of inflation or politically affected monetary policy errors.

Trump has repeatedly urged central banks to cut by 3 percentage points to boost the economy and reduce the costs of serving US more than $36 trillion in government bonds. He suggested on several occasions that he might try to fire the Federal Reserve Chairman. Jerome Powelljust backtrack and repeat his calls for a lower fee.

This week, Trump admitted he discussed Powell’s potential firing in a meeting with House Republicans, but told reporters he doesn’t think he’ll move forward with the plan.

In a memo Wednesday, Michael Ferroli, US Economics President at JP Morgan, wrote in a memo Wednesday that “the immediate crisis may have passed, but we don’t think we are ending this story entirely.”

Atlanta Fed Chief Bostic Downplay Trump – Powell’s Tension

Ferroli pointed out that federal law prohibits deleting members Federal Reserve System The Committee excludes “causes” that are usually thought to cover cases of fraud or neglect, as opposed to differences in policy opinion regarding interest rate levels.

“The cause being debated is the cost overrun regarding the renovation of the Fed main building in Washington, DC. It is difficult to know where this can go, as there appears to be little historical precedent for determining the boundaries of the removal of the “cause” of independent agency supervision,” writes Ferroli.

recently supreme court Trumpv. Wilcox’s ruling allowed the president to dismiss members of the National Labor Relations Commission, which he had protected “for the cause.” However, the ruling called the Fed a separate case, distinguishing central bank governors as “uniquely structured semi-private entities” that could protect them from termination of their will.

Powell shares what it takes to leave the Fed, the book reveals

Efforts to remove Powell and demote him from his role as chairman of the Federal Reserve Board could undermine central bank independence. Financial market trust If US monetary policy is more susceptible to political influence.

Ferroli explained that economists “believe it would be beneficial to remove monetary policy from the political cycle.”

For example, lower interest rates can promote economic activity and increase Inflationary pressure In the economy, slower speeds when inflation rises or is rising can further boost prices.

Goldman Sachs says it has economic consequences for undermining central bank independence

Economic research from around the world has found that central banks have been successful in promoting stable prices and low inflation when political independence is high, but the US performance during the period of clashes between the president and central bank tends to result in higher inflation.

“International evidence shows that central banks with more political independence tend to promote lower and more stable inflation. Close to homes suggests that political interference contributed to poor monetary policy in the late 60s and early 70s.

In the current context, ferroli not only increases the risk of higher inflation when weakening Fed independence; US government bonds To explain these risks, it will exacerbate the US financial challenges.

Click here to get your Fox business on the go