Trump threats against Fed chief trigger rare global response

Donald Trump’s threats against Federal Reserve chair Jerome Powell have prompted an unusually blunt show of international solidarity, exposing growing concerns about political interference in economic governance, writes Mark Beeson.

CENTRAL BANKERS tend not to be household names. Keeping a relatively low profile and not needlessly “politicising” their roles is part of the job description.

After all, the reason they have been given such power and influence when it comes to determining monetary policy in particular is that it’s widely thought that politicians cannot be trusted to act in the national interest rather than their own.

U.S. President Donald Trump is currently demonstrating the veracity of that assumption. Not only does the Trump Administration display no concern about the impact of its policies on traditional friends and allies, but either from ignorance or indifference, its economic policies risk triggering an economic crisis that is likely to impact Trump’s working-class supporters more than anyone else.

There has always been a debate about what central bankers should prioritise when making their judgements about policy priorities – broadly speaking, the interests of business or labour – but there has never been much doubt about the need for economic stability and the avoidance of crises.

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The presumed advantage of notionally independent central bankers is that they will act in the long-term interests of their respective countries and not for the people who run them. Leaders who have used their power to overrule independent policymakers, like Türkiye’s Recep Tayyip Erdoğan, have often been pilloried as authoritarian illiterates with no understanding of the inexorable “laws” of economics. To judge by recent inflation levels in Türkiye, the critics may have a point.

The inherent tension between apolitical technocrats and potentially megalomaniacal national leaders has become a much more prominent issue because it is playing out in the United States, which remains the bedrock of the international economic order. Reckless or ill-judged economic policy in America could easily trigger another Global Financial Crisis, just as it did in 2008.

This is what makes the current disagreement between Trump and America’s central banker, Jerome Powell, so consequential. Trump’s major gripe is that Powell has not reduced interest rates as quickly as he would like. Consequently, he has made it clear that he would like to sack Powell. However, the Federal Reserve, America’s central bank, has statutory independence precisely because this should insulate it from political “interference”.

Again, there is an important debate about whether elected politicians or unanswerable technocrats should make decisions that affect the lives and livelihoods of voters. However, there’s widespread agreement that Trump lacks even a semblance of the sort of impartiality and expertise required to make policies that are likely to ensure economic stability. Significantly, the only thing that really gets Trump’s attention is the judgment of the financial markets.

What has made the relationship between Trump and Powell especially controversial is that the President has tried to use the legal system to undermine Powell, suggesting that he is at best incompetent and at worst corrupt as a result of the latter’s role in the renovation of the Fed’s headquarters. This move has been made easier by Trump appointees to the judicial system.

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By seizing a sitting head of state, Washington has replaced international law with a doctrine of unilateral reach.

One of the defining features of authoritarian regimes is the stacking of the administrative and legal systems with cronies who owe their positions and loyalty to the leader. This is precisely what is happening in the U.S., as the much-discussed checks and balances that are supposed to curb the power of potential despots are being systematically undermined. In such circumstances, anyone who stands up to self-serving bullies, as Powell has done, should be applauded.

Remarkable as that is in the face of presidential power, what is even more surprising is that Powell has been supported by his counterparts in other countries. Given Trump’s destructive unilateralism and contempt for international norms of “good governance” and even the rule of law, perhaps pushback might have been expected. But it is rare and noteworthy, nonetheless.

A joint statement of solidarity was issued by the European Central Bank and signed by the heads of central bankers from the UK, Canada, South Korea and even Australia, not usually known for its willingness to say anything even obliquely critical of American policy. But not only did Reserve Bank governor Michele Bullock sign on behalf of Australia, but she was supported by her notional boss, the Treasurer Jim Chalmers, who described her actions as “appropriate”.

In the context of Australia’s relationship with the U.S., this counts as a fiery denunciation. The first rule of foreign policy in this country is “never criticise the Yanks”, no matter what improbable, illegal or destructive a policy they may be embarked on. But if we have to rely on unelected technocrats to stand up for good governance and the rule of law, we’re in more trouble than I thought.

Perhaps Jim should ask Michelle where she got her backbone from.

Mark Beeson is an adjunct professor at the University of Technology Sydney and Griffith University. He was previously Professor of International Politics at the University of Western Australia.