The Financial Times: Trump’s confrontation with the Federal Reserve threatens the stability of the global economy

The Financial Times sees an unconventional scenario which is beginning to surface in the United States, in a larger and more dangerous scale, as the clash between President Donald Trump and the head of the Council of Governors escalates Federal Reserve Jerome Powell.

The differences between the two sides are no longer limited to political statements or insinuations, but have turned into an open legal confrontation that could threaten the independence of US monetary policy and put the reputation of the institutions that have led the global economic system since World War II to the test.

In an unprecedented development, Jerome Powell this week broke with the strict norms that govern his office, appearing in a live video in which he accused officials of using the judiciary as a tool of political pressure.

The case revolves around an investigation launched by the Justice Department into the $2.5 billion Federal Reserve headquarters restoration project.

But Powell made it clear that the issue, in essence, isn’t about spending control, but rather a pretext to pressure him to cut interest rates to levels close to 1%.

Trump sees the cut as necessary to revive the economy and reduce the cost of government borrowing by billions of dollars, ignoring the principle of monetary independence.

This public escalation has sparked widespread concern inside and outside the United States.

According Gita Gopinath, a professor of economics at Harvard University, said that what is happening is a historic moment that could have long-lasting effects on the United States’ standing and leadership role in the global financial system.

The Justice Department’s moves didn’t go unchallenged, even within the Republican camp.

Several Trump allies have expressed concern about the style of confrontation, with Larry Kudlow, a former economic adviser to the president, hinting that the Justice Department may have rushed to open the case against Powell.

In Congress, prominent Republican figures, led by Senator Thom Tillis, have begun to publicly express their rejection of these prosecutions, threatening to block any attempt to appoint a replacement for Powell unless the judicial pressure stops.

This division puts Trump in a complicated equation, as the effort to subjugate the Fed could turn into a source of rebellion within his own party.

In parallel, political and legal circles are awaiting the Supreme Court’s position on another equally sensitive case, related to Trump’s attempt to fire Federal Reserve Governor Lisa Cook over allegations of alleged real estate fraud, accusations that Cook has categorically denied.

Fred Miskin, a former Federal Reserve official, argues that the court’s decision could be a historic turning point, as the president’s right to fire central bank members for political reasons would give him the power to reconfigure the entire Board of Governors and transform the Federal Reserve from an independent institution into an arm of the White House.

So far, US markets appear to be cohesive, with relative calm on Wall Street, a sign of investors’ bet on the Fed’s resilience.

However, this calm mask precautionary moves on the horizon, as major financial institutions, such as PIMCO, have begun to diversify their portfolios away from the dollar, in anticipation of the risks of politicizing monetary policy.

The greatest danger in this confrontation is not so much with Jerome Powell as with the entrenchment of the creeping politicization” approach to monetary institutions.

Lyle Brainard, a former Federal Reserve official, warns that the continuation of this approach could lead future monetary policymakers to act under the pressure of fear of prosecution, turning interest rates from an inflation control tool into a means of servicing electoral calculations.

In this scenario, the US economy isn’t alone in facing uncertainty, but the concern extends to the entire global financial system, which, experts warn, may find itself on the crater of long-term turmoil.