10.16熊猫外刊精读|America's central bank：The Federal Reverse

【1】It is the first time that an American president has tried to sack a governor on the board of the Federal Reserve. The credibility of the central bank is one of the underpinnings of America’s world-beating economy. And yet, although dollar assets weakened a little on the news, financial markets are taking it all in their stride. Whatever is going on?

【2】Donald Trump escalatedhis war against the Fed on August 25th, saying he would fire one of itsgovernors, Lisa Cook, forallegedmisstatements in hermortgageapplications. Fedgovernorscan besackedonly for cause and Ms Cook, who has not been charged, hasvowedto fight herdismissalin court. Yet everybody knows this is not really aboutmortgagefraud. Instead, like a show trial, it is a message to anyone who serves on the Fed’s board that Mr Trump canimpose his desire for low interest rates. On August 26th he crowed that “We’ll have a majority [on the board] very shortly.”

【3】One reason investors are not yet panickingis that the presidentunderestimateshow much work he still has to do. Even if Ms Cook departs, his pick toreplaceher must gainconfirmationfrom the Senate, a process thatscotchedthe chances of Judy Shelton and Stephen Moore, Mr Trump’snomineesduring his first term. And if they clear thathurdle, they will still be part of acommitteethat sets rates bymajority vote.

【4】Much is being made of the fact that the board contains Chris Waller and Michelle Bowman, who were successfully nominated by Mr Trump in his first term. No doubt he believes that makes them his creatures. However, although they dissented from the Fed’s latest decision to keep interest rates on hold, preferring instead to cut, there is a respectable case for doing so. Mr. Waller, the bookies’ favourite to succeed Jerome Powell, is no more of a presidential stooge than the incumbent. Mr Powell became Fed chairman in 2018—under Mr Trump.

【5】In addition, although Mr Powell’s term as chairmanends in May, histenureasgovernordoes notexpireuntil January 2028. Theconventionis for him to retire next year, but these areconvention-busting times and he could choose to stay on, denying Mr Trump the chance to fill another seat. The markets, in other words, will have plenty of time and opportunities topanicbefore thepresidentis in aposition to pull the levers at the Fed.

【6】But do not conclude that all must therefore be well. investors would look on with alarm if the Fed were to have a super-chair seated behind the Resolute desk. And rightly so. The memory of Richard Nixon strong-arming Arthur Burns into keeping rates low in the early 1970s, and the rampant inflation that ensued, has made the independence of the central bank one of the strongest norms in American politics.

【7】Other things being equal, greater political influence over the Fed will raise interest rates because of the extra risk of bad decisions. That is why investors are already demanding greater compensation to hold long-dated Treasuries, even as the Fed has cut rates and the economy has weakened. Given Mr Trump’s wishes, the irony is obvious. The Fed’s independence is being attacked just as the government is racking up debt. The more interest payments rise, the more tempting it will be to lean on the Fed, whoever is in power.

【8】Mr Trump’s attack on Ms Cook is yet another symptom of the corruption of America’s government. Allegations of mortgage fraud have also been made against Adam Schiff and Letitia James, two Democratic politicians. There is no telling who else could fall victim to the partisan trawl of mortgage applications and, who knows, tax returns. It is easy to imagine Democrats one day returning the favour.