US President Donald Trump’s attempts to put pressure on the country’s central bank, the Federal Reserve, pose a “very serious danger for the US economy and the world economy,” the president of the European Central Bank (ECB), Christine Lagarde, said on Monday.
President Trump has threatened to dismiss Fed Chairman Jerome Powell after repeatedly attacking him for not cutting short-term interest rates, and is also attempting to fire Fed Governor Lisa Cook.
What else did Lagarde say about Trump and the Fed?
The ECB chief stressed the importance of independence in US monetary policy.
“If US monetary policy were no longer independent and instead dependent on the dictates of this or that person, then I believe that the effect on the balance of the American economy could, given the effects this would have around the world, be very worrying, because it is the largest economy in the world,” Lagarde told French radio station Radio Classique.
Nevertheless, she also assessed that it would ultimately be “very difficult” for Trump to take full control of Fed policy.
“The US Supreme Court, which is largely respected in the country and therefore I hope will be respected by [Trump] as well, has clearly indicated that a Fed governor can only be dismissed in the case of gross misconduct,” Lagarde explained.
“And you’d have go quite far to be fired for gross misconduct,” she added.
Lagarde also told said that a ruling on Friday by a US appeals court that most of Trump’s tariffs were illegal had added a “further layer of uncertainty” to the global economic outlook.
Potential collapse of French government ‘concerning’
Meanwhile in Europe, economists’ eyes will be on France in the coming weeks where the government of Prime Minister Francois Bayrou is facing a likely defeat in a confidence vote tabled for next Monday in the National Assembly.
“What I’ve observed in the last six years [as ECB President] is that political developments and moments of political risk have an obvious impact on the economy,” said Lagarde.
“Any risk of a collapse of government in any country in the Eurozone is concerning,” she warned.
On the other hand, Lagarde said she was much less worried about the prospect of France having to turn to the International Monetary Fund (IMF) for economic assistance.
“Countries request IMF intervention in circumstances of serious budgetary deficit or when a country cannot meet its financial obligations,” she explained, but said the French banking system was better placed compared to the 2008 financial crisis.
“I believe that the French banking system is well capitalized, that it is in better shape than it was during the last major financial crisis, that it is well structured, well supervised, and has responsible players,” she said.
“I do not believe that the banking system itself is in any way the source of the current risk, but markets, in all circumstances of this nature, assess the risk,” she added.
Edited by: Saim Dušan Inayatullah
