President Donald Trump sent shock waves through the global markets on Monday evening and said he would fire the governor of the Federal Reserve Board, Lisa Cook.
Trump’s decision not only brought investors and economists to the warning, but also drew attention to the complicated interior work of the US Central Bank. It is also the latest escalation of Trump’s monthly pressure campaign against the Fed, historically politically independent, to lower interest rates.
Here are the most important facts to know:
Why do we follow the Federal Reserve?
The Federal Reserve manages monetary policy for the United States. The double mandate, which was determined in a 1977 congress law, which changed the law on the Federal Reserve, is to maximize full employment and ensure stable prices. Since the United States houses the largest economy in the world, the 111-year-old central bank also helps to determine the economic tone for all other developed and emerging markets. The FED also monitors and regulates banks and their financial activities through a number of exams, stress tests and corrective measures as well as attempts to identify and alleviate systemic risks.
A 12-member group within the Fed called Federal Open Market Committee (FOMC) defines the most important loan rate overnight to 4.25% to 4.50%. The Fed Fund interest rate is the target interest rate that the banks are mutually calculated for overnight loans to meet their reserve requirements and helps to set the costs for domestic mortgages, car loans and credit card debt. The FOMC regularly holds sessions planned at least eight times a year.
Who is Lisa Cook?
Cook, the first African -American woman sitting in the Fed, has been a governor since 2022. The following year was again referred to and her 15-year term will expire in 2038.
Before he came to the Fed, Cook was a professor of economy and international relationships at the Michigan State University. Cook in economics at the University of California, Berkeley, was previously director of the summer training program for the American Economic Association, a research assistant at the National Bureau of Economic Research, at the Kennedy of Government of the Faculty of the Kennedy of Government of the Faculty of the National Fellow at Stanford University.
From 2011 to 2012, Dr. Cook Senior Economist in the Council of Economic Advisers under President Barack Obama.
What is a Fed governor?
The Fed Governor Council consists of seven members who are appointed by the President and confirmed by the Senate. The governors are considered the core of the institution and are constant members of the closely respected FOMC. The other five voting members of the FOMC consist of the President of the Federal Reserve Bank of New York, a constant member and a rotating occupation of four reserve bank presidents.
Why does Trump shoot Cook? Did she answer?
In a social media contribution, Trump allegations that Cook made false statements about mortgage applications. Cook replied with the statement that he had no authority to dismiss her and she would complain.
In an official statement on Tuesday afternoon, the FED said that it would comply with a court decision that rules the legality of Cook’s dismissal. Although the President can relieve a Fed governor “from a matter”, the law does not define exactly what that means. The case is expected to end in front of the Supreme Court.
Is there a secondary motive?
While Trump quoted the mortgage problems, the move to Fire Cook comes in the middle of his advance after the Fed to reduce its most important loan rate. At the beginning of this summer, Trump had the idea of releasing the Fed chairman Jerome Powell, whom he repeatedly blamed to keep the interest underneath since the end of last year.
Trump can get his wish: Fut -Futures Futures are likely to be more than 89% pricing for the fact that the central bank, according to CME FEDWATCH tool, reduces interest in September in September. However, this market evaluation is more based on a weak work report in July and the downward evaluation growth in employment growth in May and June as on political pressure from the White House.
What was the market reaction?
After a trend in which Trump was resumed in January, investors shook the immediate concern that politics would penetrate monetary policy. The shares rose on Tuesday.
However, there were signs of concern in other areas. A Index persecution of the US dollar Against a basket with foreign currencies met on Tuesday when investors searched for international alternatives. Gold – Traditionally regarded as a safe value of the value in times of increasing inflation – rose in response to the Move of the White House.
What does the dispute mean for the Main Street?
Everyday Americans have no immediate effects of Trump’s decision on Cook. But it could have long -term effects on economic policy.
If Trump is able to remove Cook, this would create an opening to appoint a FOMC governor who is probably right for lower interest rates.
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