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A conflict that goes beyond economics
The clash between Donald Trump and the Federal Reserve is not only about monetary policy or the level of interest rates in the United States. It has become a political and institutional conflict that calls into question the independence of the U.S. central bank and, more broadly, the balance of powers on which the American system is founded.
In recent days, Trump told the New York Times that he does not feel bound by international laws, rules, or systems of checks and balances. When asked what could limit the use of U.S. military force, he replied:
“My morality. My mind. It’s the only thing that can stop me.”
These words have evoked disturbing historical reflections, such as those of journalist H. F. Armstrong on Benito Mussolini, cited by Giuseppe Antonio Borgese in Goliath: The March of Fascism: the idea of “coldly willing the anarchy of the moral world,” when no authority remains above the leader.
The real objective: bending the Federal Reserve
Within this context comes the offensive against the Federal Reserve. Trump aims for direct control of the central bank, despite the fact that it is formally independent from the President and makes decisions collectively through the Federal Open Market Committee, composed of Fed governors and the presidents of regional banks.
According to Janet Yellen, former Fed chair and former Treasury Secretary, such subjugation would represent a step toward an authoritarian state, or a true “Banana Republic.”
Interest rates and U.S. public debt
The core of the clash concerns the cost of money. Trump is pushing for interest rates between 1 and 2 percent, compared with the current level of around 4.5 percent. Such a drastic reduction would make it easier to finance White House policies through debt.
These include:
- the extension of the 2017 tax cuts, which primarily benefit large fortunes and multinational corporations and are set to expire at the end of 2025;
- increased military spending;
- tougher immigration policies.
According to the Congressional Budget Office, taken together these measures will add about $3.3 trillion to U.S. public debt by 2034.
Immigration, ICE, and political costs
Trump-backed policies also include the operations of Immigration and Customs Enforcement (ICE), an agency known for mass deportations and for controversial episodes, such as the cold-blooded killing of Renee Nicole Good in Minneapolis.
These policies also carry high costs, further increasing the central role of U.S. monetary policy in supporting public spending.
From insults to threats against the Fed
At first, Trump attacked the Fed mainly on a verbal level. Federal Reserve Chair Jerome Powell was repeatedly insulted: “stupid,” “stubborn as a mule,” “empty-headed,” and nicknamed “too late” for being too slow to cut rates.
“You’ve cost the United States hundreds of billions of dollars with no inflation,” Trump said, accusing him of harming the country.
In August, the conflict escalated further with the announcement of the “immediate” dismissal of Governor Lisa Cook, accused of mortgage fraud. A court allowed her to remain in office, but the Supreme Court has yet to issue a final ruling.
The renovation and Powell’s response
On January 11, the clash reached a new level. Jerome Powell revealed that the Fed is under threat of legal action by the Department of Justice over the renovation of its Washington headquarters. He did so through a video published on the central bank’s official website—an unprecedented move.
Trump accuses the Fed of exceeding its budget, claiming that costs rose from $2.7 billion to $3.1 billion and suggesting fraud. Powell denied these figures, calling the attack a political pretext.
“The threat arises from the fact that the Fed makes decisions in the interest of citizens, not the president,” he said.
In the video, Powell asserted his institutional role:
“Sometimes those who serve the state must show firmness in the face of threats. I will continue to carry out the task for which I was confirmed by the Senate with integrity and in service of the American people.”
Markets under strain and a message to the future
Market reactions were swift. On January 12, amid peak institutional tensions, gold and silver hit new records in Hong Kong, while the dollar lost value.
Economists, financiers, and former Fed leaders expressed solidarity with Powell, warning that subordinating the Federal Reserve would jeopardize the economic stability of the United States and the entire global financial system.
According to the Wall Street Journal, Trump should instead focus on the runaway costs of some of his own projects, such as the renovation of a wing of the White House, which rose from $200 million to $400 million. But the attack on Powell has another objective as well: intimidating whoever comes next.
Powell’s term expires in May. Trump could replace him with a loyalist, such as adviser Kevin Hassett or former governor Kevin Warsh. The message is clear: whoever leads the Fed must obey. Otherwise, they will face the same treatment.
Source
Donald Trump versus the Federal Reserve – what you need to know | Reuters
DOJ investigation of Powell sparks backlash, support for Fed independence | PBS News
Stocks and Treasuries calm after Fed indictment jitters, dollar weakens | Reuters
U.S. futures slide as Powell investigation rattles markets, sending gold and silver higher | Fortune
Gold, silver hit record highs as US Justice Dept probe targets Federal Reserve
