Dark mode is here!If you would like to change, tap into the appearance drop down below.Go to appearance
Personalise the news and
stay in the know
Emergency
Backstory
Newsletters
中文新闻
BERITA BAHASA INDONESIA
TOK PISIN
analysis
Topic:Business, Economics and Finance
Donald Trump said last week he has "the right to do anything I want to do" as he sacked Lisa Cook from the Federal Reserve board. (Reuters: Carlos Barria, file photo)
Financial markets are missing the point about Donald Trump's takeover of the Federal Reserve.
It's not really about getting interest rates down or even just about the Fed. America is in the midst of an authoritarian revolution with global implications, especially for dependent allies like Australia.
Last week, Trump announced that he was removing Lisa Cook, who is one of the seven governors of the US central bank, the Federal Reserve. The reason: "for cause", based on an unproven allegation of fraud in mortgage applications while she was a professor.
Trump says he has removed Lisa Cook from the board of the US Federal Reserve but she is refusing to leave and threatening legal action.
Markets did not freak out, surprising analysts everywhere, even after Trump followed up by telling a televised cabinet meeting that: "We'll have a majority [on the FOMC — the Fed's Federal Open Market Committee] very shortly. Once we have a majority, housing is going to swing, and it's going to be great. People are paying too high an interest rate."
But it's not about housing, which is already too pricey, or the interest rate, about which Trump has been badgering and insulting Fed chairman Jerome Powell for months. It's another step, albeit a big one, in America's slide into authoritarianism and the Trump/MAGA regime's takeover of every aspect of government.
Most mortgages in the US are on a 30-year fixed rate and are set according to the market rate of longer-term government securities, not what the central bank does to the cash rate, as in Australia.
Also, almost everyone switched to a new 30-year mortgage in 2020-21 when rates were super low and they won't rollover until 2050.
The announcement about Lisa Cook came after Trump had said: "I have the right to do anything I want to do. I'm the President of the United States."
It was a statement that did not get the attention it deserved.
A week earlier, Trump announced that National Guard troops would be deployed in Washington DC to quell a fabricated crime wave, before flying to Alaska for a red-carpet welcome onto American soil of Russian President Vladimir Putin, applauding him as he approached.
Then last week he announced that the US government would take — for free — a 10 per cent stake in Intel Corporation, instructed restaurant chain Cracker Barrel to abandon its new logo, mandated that federal architecture must be "beautiful again", played a round of golf with former New York Yankees pitcher and accused drug cheat Roger Clemens before demanding that he be admitted into the Baseball Hall of Fame and then announced that he had sacked Lisa Cook.
Obviously, the last of those was the most consequential, although nationalising a 10th of a big company is a weird sort of capitalism.
The fact that markets were untroubled by an attempted political takeover of monetary policy is probably explained by a few things:
The FOMC has 12 members: the seven Fed governors, the president of the New York Federal Reserve Bank, and four of the 12 other regional Federal Reserve Banks rotating through 12-month terms.
If Trump succeeds in getting rid of Cook, he'll have appointed four of the seven governors, which will become five next May when chairman Jerome Powell's term ends.
After just five months in power, US President Donald Trump predictably has driven a wrecking ball through the foundations of American society. In recent weeks, he's re-opened an old front from his first term.
The regional Fed presidents serve concurrent five-year terms, with the next big switch due at the end of February 2026 when they all must be renewed or replaced.
Trump does not get to appoint them — they are chosen by the directors of each regional Fed — but they do have to be approved by the main Fed's board of governors, so if Trump controls that he could keep knocking them back till he gets those he likes.
But that's all a way off, at least six months, which is a long time in the markets these days, and their habit is to remain optimistic until the last possible moment.
Market traders are watching each other, not the world, or as JM Keynes put it, what matters for investors is understanding the average opinion of the average opinion.
If they were watching the world, they would see a highly focused, carefully planned and very significant change in the way government is carried out in the United States.
If Trump controls the Fed's board of governors he can have influence over the selection of regional Fed presidents next year. (Reuters: Larry Downing, file photo)
The animating idea behind Project 2025, which contained the blueprint for the second Trump presidency, is called Unitary Executive Theory, which is based on the proposition that the president should have complete executive authority over every part of the federal government.
That means eliminating the customary independence of any government institutions, such as the Department of Justice, FBI, the Bureau of Labor Statistics and the Federal Reserve and bringing them under the direct control of the president.
It's based on what's called the Executive Vesting Clause, which is Article II, Section 1, Clause 1 of the constitution, which says simply: "The executive Power shall be vested in a President of the United States of America."
Article I gives legislative power to Congress and Article III vests judicial power in the courts, specifically the Supreme Court, and "such inferior Courts as the Congress may from time to time ordain and establish".
The Trump/MAGA regime has made no secret of its belief that Article II should be taken literally and that all executive power should be vested in the president and his cabinet and staff.
Also note that no government institution, including the Federal Reserve, has legislative independence from the White House.
In line with that, Trump's sacking of several normally independent commissioners has been supported by the Supreme Court, up-ending long-standing practice.
Now it's the Fed's turn and given its revered independence from the caprices of politics — along with that of most other central banks, including Australia's — it is a Rubicon once crossed there will be no part of the government not under the president's direct day-to-day control.
Democrats, other Trump opponents and most economists decry all this, but it does seem, at least on the surface, to be what the drafters of the constitution had in mind — as long as there are meaningful checks and balances from Congress and the Supreme Court.
The Trump/MAGA regime believes all executive power should be vested in the president and his cabinet and staff. (Reuters: Jonathan Ernst)
The trouble is Trump has also stacked the Supreme Court and is ignoring or bypassing Congress, which was not anticipated back in 1787 when the constitution was signed.
Returning to the US for the first time in four years, I found a country that didn't want to talk about politics, despite being in the eye of the Trump storm.
He is now working on gerrymanders around the country, starting in Texas, to ensure that Republicans are more likely to be elected.
Trump did assure Americans before the election last year that it would be the last one that they'd have to worry about, that there wouldn't be any more elections, but still — it's hard to imagine the United States becoming a fully fledged autocracy.
There will be more elections, so perhaps a more realistic concern for voters is that future presidents might be reluctant to give up the unitary executive power that Donald Trump has bestowed on them.
Political scientists call that "competitive authoritarianism", in which autocrats take turns to rule and plunder.
That may be what the US is heading for unless a future administration and Congress undo Trumpism.
Alan Kohler is finance presenter and columnist on ABC News, and he also writes for Intelligent Investor.
Topic:Unrest, Conflict and War
Topic:Crime
Topic:Cyber Crime
Topic:Royalty
Topic:Awards and Prizes
Analysis by Gareth Hutchens
Topic:Government and Politics
Australia
Business, Economics and Finance
Foreign Affairs
United States
Topic:Unrest, Conflict and War
Topic:Crime
Topic:Cyber Crime
Topic:Royalty
Topic:Awards and Prizes
Topic:Awards and Prizes
Topic:Crime
Topic:Rail Accidents and Incidents
Topic:Cyber Crime
We acknowledge Aboriginal and Torres Strait Islander peoples as the First Australians and Traditional Custodians of the lands where we live, learn, and work.
This service may include material from Agence France-Presse (AFP), APTN, Reuters, AAP, CNN and the BBC World Service which is copyright and cannot be reproduced.
AEST = Australian Eastern Standard Time which is 10 hours ahead of GMT (Greenwich Mean Time)