Christine Lagarde, the head of the European Central Bank (ECB), has issued a strong warning about the risks of political interference in the United States Federal Reserve. She said that attempts by Donald Trump to weaken the independence of the world’s most powerful central bank could create a “very serious danger” for the global economy.
The concern comes after repeated efforts by Trump to influence the decisions of the Federal Reserve. The Fed, led by Jerome Powell, is responsible for setting interest rates and managing inflation in the US. It plays a key role in financial stability across the world, as the US is the largest economy globally.
Lagarde warned that removing senior officials from the Federal Reserve, including Powell or governor Lisa Cook, would shake trust in the institution. Central banks are designed to work independently, free from direct political pressure, to ensure that economic decisions are taken for stability rather than short-term politics.
Dispute over attempted removal of Fed officials
In recent months, Trump has openly criticised Powell for not cutting interest rates. He has also tried to remove Lisa Cook, a sitting governor whose term is set to last until 2038. Lawyers for Cook have argued that the removal is unlawful, since Federal Reserve officials can only be dismissed under special circumstances, such as gross misconduct.
Trump’s global tariffs struck down by federal court for exceeding emergency powers
Cook reportedly learned about the attempt to dismiss her through a post on social media. The case is now being contested in court and could reach the US Supreme Court. If successful, the removal would allow Trump to nominate a replacement, raising further concerns about political control over the central bank.
Lagarde said it would be “very difficult” for Trump to take over decision-making at the Fed. She noted that the Supreme Court had made clear that only cases of serious wrongdoing could justify the dismissal of a Federal Reserve governor.
Trump’s criticism of the Fed has received some backing abroad. Liz Truss, the former UK prime minister, expressed support for his stance. Truss herself was forced to step down after financial markets reacted negatively to her government’s policies in 2022.
Rising borrowing costs worldwide
The debate over the independence of the Federal Reserve comes at a time when borrowing costs are rising in the United States and other advanced economies. Investors have grown more cautious, worried about the combination of high government debt, inflation pressures, and political risks.
US government borrowing costs have climbed in recent months, with markets reacting not only to Trump’s tariff policies but also to doubts about the Fed’s freedom to set policy. Political interference, experts say, can weaken confidence in central banks and make it harder for them to control inflation.
Trump move to remove Fed governor Cook raises debate over limits of presidential authority
This concern is not limited to the United States. Government borrowing costs in the United Kingdom have reached near 30-year highs. In France, borrowing costs have also risen, linked to ongoing political uncertainty under President Emmanuel Macron. The French government, led by Prime Minister François Bayrou, is facing challenges in parliament, with a crucial confidence vote expected soon.
ECB monitoring and financial market reactions
The ECB is closely watching the situation. However, Lagarde dismissed suggestions that France might need emergency support from the International Monetary Fund, as hinted by Finance Minister Eric Lombard. She stressed that the country’s banking system is stronger than it was during the 2008 financial crisis.
She also highlighted that financial markets always react to political risk, and these reactions can have real effects on economies. While the French banking sector itself is not under threat, the political and market turbulence has been a factor in pushing up borrowing costs.
The warnings underline how events in one major economy can spread quickly across borders. With the US dollar and US interest rates at the centre of global finance, any doubt about the independence of the Federal Reserve could ripple out to economies everywhere.