Criticism of "Shaking Up the Fed" in UK FT Op-Ed
Undermining Fed Independence Risks High Inflation, Low Growth, and a Weaker Dollar
"Catastrophic Consequences... Threat to US Economy and Global Leadership"
Janet Yellen, former US Secretary of the Treasury, has warned that President Donald Trump's attempts to undermine the central bank could reduce the US Federal Reserve (Fed) to a 'puppet' of political power, threatening not only US monetary policy but also the stability of the American economy and the nation's global leadership.
In an op-ed for the Financial Times (FT) published on the 27th (local time), Yellen sharply criticized President Trump's dismissal of Fed Governor Lisa Cook, calling it "illegal and extremely dangerous." She stated, "This is a direct attempt to politicize the Fed, intimidate its leadership, and manipulate monetary policy at the president's whim."
She served as Treasury Secretary for four years under the Joe Biden administration and previously chaired the Fed from 2014 to 2018. Her successor, Jerome Powell, is the current chair of the Fed.
Yellen pointed out that there is no documented illegal conduct regarding President Trump's justification for dismissing Cook over alleged mortgage fraud, arguing, "Mere allegations cannot be grounds for dismissal." She added, "President Trump's claims are fictitious and serve merely as a pretext to justify an effective seizure of dictatorial power."
She further noted, "This is not just an issue concerning one individual Fed governor, but a matter of intimidation." She emphasized, "It sends a chilling message to every member of the Fed Board and to the presidents of the regional Federal Reserve Banks who participate in the Federal Open Market Committee (FOMC): if you oppose the president's views, you could be next."
Above all, Yellen warned that undermining the Fed's independence could result in high inflation, low growth, and a weak dollar. She noted that while President Trump's top priority is to reduce interest costs on the $37 trillion national debt, the outcome would be "catastrophic."
She stated, "If markets believe the Fed is acting under political orders, every interest rate decision will lose credibility." She continued, "Expected inflation will become unstable, the dollar's status as the world's reserve currency will be jeopardized, and both investors and allies will conclude that the US no longer has an independent central bank." She added, "Ironically, such a strategy is likely to lead to rising expected inflation and long-term interest rates."
Yellen also recalled historical lessons. "During World War II, the Fed kept interest rates low to help the Treasury finance the war, but this resulted in high inflation," she explained. "In 1951, an agreement between the Fed and the Treasury allowed the Fed to focus on price stability and maximum employment, and Congress legally assigned these responsibilities to the Fed."
Finally, Yellen asserted, "The Fed's independence is not just technocratic rhetoric, but the foundation of US economic stability and global leadership." She concluded, "President Trump's attempts to undermine the Fed for personal gain are reckless, corrupt, and profoundly un-American."
The backdrop to Yellen's public criticism in her newspaper op-ed is President Trump's brazen efforts to shake up the Fed. Since the start of his second term, he has repeatedly pressured Chair Powell to cut interest rates. Recently, he has expanded his attacks from Powell to individual Fed governors, openly expressing his intention to restructure the Fed Board with members favorable to rate cuts. The previous day, he indicated his intention to nominate a replacement for Governor Cook, saying, "We will very soon secure a majority on the Fed Board. We need to lower rates." If President Trump nominates a replacement for Governor Cook, he will secure at least four rate-cut supporters on the seven-member Fed Board.
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