Economists have raised concerns that President Trump’s recent attempts to meddle with the Federal Reserve could lead to bigger costs for American families.
On Wednesday, Michael Madowitz, a principal economist at the Roosevelt Institute, stated that the president’s goal of pressuring the Federal Reserve to cut interest rates—highlighted by his action to dismiss Federal Reserve Governor Lisa Cook—could actually accelerate inflation.
According to Madowitz, “By politicizing interest rates, the administration is using a heavy-handed approach that will ultimately harm American families as it drives up costs. We’ve seen that over in Turkey, where political meddling has caused inflation to skyrocket beyond 33%, in stark contrast to how Fed independence has helped maintain inflation under 3% in the US.”
Heidi Shierholz, who heads the Economic Policy Institute, also expressed her apprehensions. She noted that Trump’s move to ax Cook undermines his stated intention to lower interest rates for boosting economic growth.
Shierholz elaborated on the potential fallout from Trump’s hands-on approach. “If the President gains undue influence over the Fed, it will show that interest rates won’t be determined by sound economic principles, but rather by presidential whims. This shakeup would shatter confidence in the Fed’s ability to handle economic downturns—whether it’s inflation or unemployment—in a fair and smart way,” she argued.
This loss of trust could lead to greater demand for higher yields from investors in US Treasury bonds, as they’ll perceive an uptick in risk associated with US debt—a move that would inevitably lead to increased borrowing costs for the nation.
“As these long-term rates soar, regular folks will see the impact on construction loans and credit card charges, making it harder for many to get by,” added Shierholz. “After Trump’s announcement, these concerns came to life almost immediately.”
Economist Paul Krugman, a former columnist for The New York Times, described the situation as alarming. In a post on his personal Substack on Thursday, he commented on Trump’s actions, labeling them “shocking and disturbing.”
“Trump’s effort to take command of monetary policy has shifted from public pressure to outright intimidation of Fed officials. Shifting to harmful tactics signifies that anyone who stands against him will be punished,” he wrote, emphasizing the real risk that the Fed’s independence could be what’s sacrificed for political means.
As these warnings arise, the new economic data has shown core inflation climbed to 2.9% in August, marking the highest rate since February of this year. Earlier, it was reported that the Producer Price Index (a precursor to inflation trends) reached 3.3%, surpassing economists’ forecasts of 2.5%.
An analysis by polling expert G. Elliott Morris indicated that inflation stands as Trump’s biggest political challenge, with a net approval rating of a discouraging -23% from American voters on this issue.
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