High stakes as Trump tries to take control of interest rates
The US central bank, the Federal Reserve, has been independent for 74 years.
Now Donald Trump is firing one of the managers in an attempt to take control of the bank and ultimately the level of interest rates.
In doing so, he is significantly raising the stakes in an economy where the risks are at record highs.
The US government debt has exceeded 37,000 billion dollars, or the equivalent of just over a million kronor for every American.
How is it that the US has been able to borrow so healthily for decades without visible consequences? One reason is confidence in the US economy in general and the US currency in particular.
In turn, this largely rests on the Federal Reserve, the central bank, which, somewhat simplified, has the task of preserving the value of the dollar.
The bank sets the interest rate and also supervises the US banking system.
Since 1951, the Federal Reserve has been governed so that politicians cannot interfere in its daily decisions. Presidents have expressed dissatisfaction with the bank, but no one has tried to take power over it.
Donald Trump's latest move is therefore shaking up not only the US but the entire world's financial market.
On Monday night, Donald Trump announced that he is firing Lisa Cook, one of seven members of the Federal Reserve's top board. She was elected in 2022 and, like the other members, serves a 14-year term. The long term is intended to reduce dependence on who happens to be president at the time.
Lisa Cook has been accused of previously falsifying documents to get better terms for mortgages, but she has not been formally charged or indicted. Lisa Cook refuses to leave her post and has hired lawyers to fight Trump's decision, which she believes is illegal.
The dismissal is just the latest in long campaign by Donald Trump to increase his power over the Federal Reserve. He has long criticized the bank's chairman Jerome Powell for not lowering interest rates, called him nicknames and accused him of not keeping track of the costs of the renovation of the Federal Reserve headquarters.
Donald Trump recently nominated one of his closest associates, Stephen Miran, to the Fed board.
Since there are already two members appointed by Trump there, he can reach a majority of loyalists by removing Lisa Cook. At the same time, the term of the head Jerome Powell expires in May.
Then the way would potentially be open for Donald Trump to also take control of the special committee in the Federal Reserve that sets the interest rate.
That the central bank is separate from politics is not a given, but it is the model that has been established in most parts of the world since World War II and is considered to have worked quite well.
The idea is that politicians should not be tempted to use central banks to lower interest rates in the short term or print more money before, for example, an election and thus create problems later on.
Independent central banks became more popular in the 1970s and 80s when the world was plagued by high inflation. Studies have shown that central banks that are at arm's length from politicians have been more successful in keeping price increases under control.
In the years since the financial crisis, central banks have gained even more power over the economy, which has led to criticism from some quarters, but ideas about reforming the system have usually been about giving national parliaments more influence, not an individual president.
Trump's decision to fire Lisa Cook quickly received support from Republicans but also harsh criticism from Democrats. The battle looks set to be decided in court.
The news is being met with some shock in the financial world. It has never happened in modern times for a politician in the world's most important economy to take on the central bank.
Trump's tariffs have already shaken confidence in the US, with the financial market, at least in the short term, responding by lowering the value of the dollar and raising the interest rate on US government bonds.
Donald Trump has also fired the head of the US Bureau of Statistics when the unemployment figures did not suit him.
Donald Trump has also attacked universities and the legal system in parallel and has recently also taken a stronger grip on the business community, among other things by taking an ownership stake in chip manufacturer Intel.
The US economy is in a situation that can most closely be compared to a tense violin string. The national debt is thus at a record high, but so are the valuations on the stock market, which are now higher than before the crashes of 1929 or 2000. An AI bubble can be sensed. House prices are at an all-time high and money is flowing into high-risk assets like bitcoin.
What could go wrong? Quite a lot. The question is how Donald Trump will react then.
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