Dangers to Average Americans If the Fed Is No Longer Independent
President Trump's attempt to remove Fed Governor Lisa Cook, the first such removal attempt in the Fed's 112-year history, has prompted economists to warn that the Fed's independence is seriously threatened.
The Fed may be under pressure to cut short-term rates, which could lead to higher inflation and ultimately higher interest rates on mortgages, auto loans, and business credit.
Independent central banks are crucial because they are freed from political pressure to make tough choices that ultimately reduce inflation. Politically controlled Feds have the potential to overstimulate the economy and ultimately lead to instability.
The U.S. economic system may move away from market-driven capitalism and toward a model where monetary policy is more politically determined if the Fed loses its independence. This would erode the checks and balances in place to prevent unchecked inflation by blurring the distinction between monetary and fiscal policy. In time, this might:
Undermine confidence in the dollar as a reliable worldwide reserve currency.
Reduced confidence in investments as companies worry about unpredictable, politically driven rate changes.
Change the government-market power dynamic so that politicians have more influence over economic cycles, rather than the Fed serving as a stabilizer.
To put it briefly, the United States would risk shifting from an economy based on rules, where predictability is provided by independent institutions, to one that is susceptible to transient political agendas.
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