Why does the independent federal reserve matters? See only Ronald Reagan’s economy with long -distance hiking rates in Paul Volker to nearly 20 %

Ruler of the Federal Reserve, Lisa Cook She says she will not leave her position.

Trump has Overpowered The President of the Federal Reserve, Jerome Powell, for not cutting the interest rate in the short term, and even threatened to shoot him. Powell, Who will speak on Friday At an economic symposium in Jackson Hall and Wyoming, he says that the Federal Reserve wants to see how the economy responds to Trump’s comprehensive definitions of imports, which Powell says can increase inflation.

Powell Trump’s caution, who demanded the Federal Reserve to reduce borrowing costs to stimulate the economy and reduce the interest rates that the federal government pays for its debts. Trump has also accused Powell of exposing the US Central Bank Renewal project of $ 2.5 billion.

The launch of the Federal Reserve Corporation or forcing a ruler to threaten the independence of the Federal Reserve Council, which has been long supported by most economists and Wall Street investors. Here is what to know about the Federal Reserve:

Why does the independence of the federal reserve matters?

The Federal Reserve has broad power over the American economy. By cutting the interest rate in the short term, it controls-which is usually done When the economy stumbles – The Federal Reserve can make cheaper in borrowing and encourage more spending and accelerate growth and employment. When the rate is raised – which is what it does to cool the economy and combat inflation – it can weaken the economy and cause job losses.

Economists have long prefer independent central banks because they can easily take unimportant steps to combat inflation, such as raising interest rates, making borrowing to buy a house, car or more expensive devices.

The importance of the independent federal reserves for most economists has been established yet High inflation From the seventies and early eighties. Former Federal Reserve Chair Arthur Burns was widely blamed to allow the painful inflation of this era to accelerate by undergoing pressure from President Richard Nixon to maintain a decrease in election rates in 1972. Nixon fears that high rates will cost him the elections, which he won in a landslide.

Paul Volker was eventually appointed by the Federal Reserve Chairman in 1979 by President Jimmy Carter, and the short -term federal reserve rate pushed almost 20 %. (It is currently 4.3 %). Ventilation rates StagnatePaying unemployment to nearly 11 %, and widespread protests.

However, Volker swung. By the mid -eighties of the last century, inflation returned to one low numbers. Most economists believe that Volker’s willingness to make the economy to suffocating the suffocation by most economists as a major example of the independent federal reserve value.

Investors are closely watching

Certainly, the effort to shoot on Powell will lead to low stock prices and high bond returns, which leads to high interest rates on government debt and increased borrowing costs for mortgages, car loans and credit card debts. The price of the treasury for 10 years is a criterion for mortgage rates.

Most investors prefer to get independent nutrition, partly because it manages inflation better without being affected by politics, but also because its decisions are more predictable. Federal reserve officials often publicly discuss how they will change interest rate policies if economic conditions change.

If the federal reserve is affected by politics, it will be difficult for the financial markets to expect its decisions – or understand it.

The Federal Reserve Independence does not mean that it is not accountable

Federal reserve chairs such as Powell are appointed by the President to serve four years, and must be confirmed by the Senate. The president also appoints other six members of the Federal Reserve Board, who can provide overlapping conditions of up to 14 years.

These appointments can allow the president over time to significantly change federal reserve policies. Former President Joe Biden appointed four of the current seven members: Powell, Cook, Philip Jefferson, and Michael Bar. Paiden V, Adriana Kogler, Unexpectedly stepped down On August 1, about five months before the end of her mandate. Trump has It was already nominated Senior economists, Stephen Miran, as a possible alternative, although it will require the approval of the Senate. The term Cook ends in 2038, so forcing it to go out will allow Trump to appoint a loyal sooner.

Trump will be able to replace Powell as head of federal reserve lectures in May 2026, when Powell ends. However, 12 members of the Federal Reserve Banking Bank rate committee have a vote on whether interest rates will be raised or interest rates will be reduced, so even the president’s replacement does not guarantee that the Federal Reserve Policy will change the way Trump wants.

Meanwhile, Congress can determine the goals of the Federal Reserve through legislation. In 1977, for example, the Federal Reserve gave a “double mandate” to maintain stable prices and search for the maximum amount of employment. The Federal Reserve sets stable prices as inflation by 2 %.

The 1977 law requires the Federal Reserve Speaker to testify before the House of Representatives and the Senate twice every year on economics policy and interest rate.

Can the president shoot Powell before the end of his term?

The Supreme Court earlier this year has suggested a ruling on other independent agencies that the president could not shoot at the Federal Reserve Chairman just because he does not like the president’s policy options. But he may be able to remove it “for the cause”, and it usually explains that it means a kind of violations or neglect.

This is a possible reason for the Trump administration to renovate the building, hoping to provide an excuse for “for the reason.” However, Powell is likely to fight any attempt to remove it, and the case may end in the Supreme Court.

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