Trump legal investigation into Fed chair Jerome Powell: What to know

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Welcome to The Logoff: Donald Trump is escalating his assaults on the independence of the Federal Reserve, with probably dire penalties for the US financial system.

What occurred? On Sunday night, we realized that the Trump administration has opened a legal investigation into Fed chair Jerome Powell over an in-progress renovation of Fed headquarters. In an virtually two-minute video, Powell described the investigation as an try and strain him into complying with Trump’s calls for to decrease rates of interest.

Trump’s transfer has generated important pushback even from congressional Republicans, in addition to uniform condemnation by each residing former Fed chair, a number of former Treasury secretaries, and economists from throughout the political spectrum.

What’s the context? Trump has lengthy sought to exert extra management over the Fed’s decision-making and to oust Powell, in addition to Fed board member Lisa Cook . However members of the Fed board can solely be fired “for trigger” — which the Trump administration has beforehand interpreted to incorporate pretextual allegations of legal exercise.

Why does this matter? The Fed is the nation’s central banking system and units US financial coverage, together with rates of interest. It’s designed to be unbiased in order that it may possibly make choices that might not be politically helpful to the president, however are the suitable factor to do for the long-term well being of the US financial system. Trump’s newest gambit might jeopardize that independence, and the financial system with it.

Why does Trump need decrease rates of interest anyway? Decreasing rates of interest can, within the quick time period, juice the financial system, which might be a boon to Trump heading right into a midterm election the place the GOP shall be on the defensive over financial points. However reducing rates of interest usually boosts inflation; decrease them too far, and the financial system can spin into disaster.