{"text":[[{"start":7.94,"text":"Donald Trump’s decision to fire Federal Reserve governor Lisa Cook is a pivotal moment. It signals the US president’s switch from unpleasant name-calling of the Fed to an all-out assault on central bank independence. There is every reason to fear for the survival of a key pillar of US and global economic stability."}],[{"start":29.23,"text":"It is important to see the forest for the trees here. Do not get distracted by the detailed questions over Cook’s mortgage applications, about which we know only a sketchy and one-sided story. What we are seeing is a cold and calculated display of intent to ensure the Fed bends to the president’s view of how to run the US economy."}],[{"start":52.17,"text":"The first question is why one person on the Fed’s seven-member board is so important when there are 12 voting members on the interest rate-setting Federal Open Market Committee."}],[{"start":63.85,"text":"This is simpler that it sounds. If Cook departs the Fed, Trump will have a majority of appointees on the Fed’s board. He picked Christopher Waller and Michelle Bowman in his last administration and has nominated Stephen Miran to fill the vacant spot left earlier this month when Adriana Kugler resigned. Waller and Bowman have already dissented from the majority decision at the July meeting of the FOMC to hold interest rates."}],[{"start":93.34,"text":"Fed governors are supposed to leave politics at the doorstep when they enter the Eccles Building. The institution does not work normally if partisan operatives are on the board and this appears to be the president’s intention."}],[{"start":108.57000000000001,"text":"Unlike Fed governors, the other five members of the FOMC are regional Fed presidents and not appointed by the president or confirmed by Congress. This puts them in a legally difficult constitutional position if they were to join a minority of Fed board members to outvote the board’s majority on interest rates."}],[{"start":130.9,"text":"According to former Fed governor and now professor Dan Tarullo of Harvard Law School, the majority of the board could ultimately fire them, ensuring that a majority on the board was able to prevail in setting monetary policy. He wrote last year that such a scenario would be “no way to run a central bank”. “The FOMC personnel drama would consume financial markets. The projection of a solid institutional footing, on which central banks rely for their credibility, would at least for a time be undermined,” he added. That is true, but it is Trump’s way. If Cook leaves, few of the FOMC can feel safe."}],[{"start":176.48000000000002,"text":"Of course, Cook can challenge her dismissal in the US courts and has vowed to do so. Judging by how similar cases have fared with the judiciary, this promises to be a lengthy battle. Other heads of non-partisan bodies, such as Gwynne Wilcox, who Trump fired as a member of the National Labour Relations Board in January, have their cases still going through the courts but are not allowed to serve until the decisions are final."}],[{"start":207.07000000000002,"text":"Lower courts reinstated them saying the president’s actions had been unlawful, but the Supreme Court ultimately said it wanted the arguments heard and in the meantime more injury would be done to the president if they continued to serve than the damage done to themselves or their institutions if they sat it out. We do not know whether this will be the route through the courts that Cook’s case will take, but it is a reasonable initial expectation."}],[{"start":234.92000000000002,"text":"Ultimately, those defending the Fed’s independence will rely on the Supreme Court, which has form in seeing more value in a strong executive branch of government than in checks and balances. Financial markets do not like Trump’s actions much, but there is no sign of the sort of meltdown that is likely to get the president to reverse course."}],[{"start":258.67,"text":"While we wait for the courts process to resolve matters, there is little doubt that the Fed’s path of least resistance is to bend economic arguments towards the president’s beliefs. Fed chair Jay Powell has already indicated the Fed will cut rates in September, well before the tension between inflation and labour market risks is resolved and we can expect further dovish tilts to come from the Fed."}],[{"start":285.5,"text":"It is not a full-blown end to independence, but a slow demise in which the risks to US inflation can only grow. Rates will be lower, markets might be happier for a while, but the risks grow."}],[{"start":301.2,"text":"And when there is the next financial crisis, the world will miss a fully independent Fed, ready to lend dollars to the world when these are in shortage. There can be no guarantee that the Fed will continue such actions if Trump is calling the shots."}],[{"start":319.75,"text":"The case of one Fed governor is not that significant on its own. But it is no exaggeration to say that the Fed’s independence and role in the international financial system could hang on Cook’s fate and experience with US judges. We should wish her well."}],[{"start":346.98999999999995,"text":""}]],"url":"https://audio.ftmailbox.cn/album/a_1756255269_7530.mp3"}