'In danger': Economist details Trump policy’s destructive effects

President Donald Trump continues to angrily rage against U.S. Federal Reserve Chairman Jerome Powell, repeatedly describing him as a "stupid person" and calling for him to be replaced. Trump is furious with Powell for not lowering interest rates, but the Fed chairman maintains that cutting interest rates is a tool to be used during an economic downturn or a recession — not when the economy is still performing well.

Trump is bullish on Treasury Secretary Scott Bessent as a replacement for Powell, who former President Joe Biden nominated for a second five-year term in 2021.

Trump believes that presidents should be able to decide interest rates. But economist Rebecca Patterson, in an op-ed published by the New York Times on July 15, lays out some reasons why destroying the Fed's independence is a recipe for economic disaster — from a devalued currency to severe inflation.

READ MORE: Stick a fork in him: Trump finally faces the threat of retribution — from MAGA

To illustrate her point, Patterson (a senior fellow at the Council on Foreign Relations and former JPMorgan Chase employee) describes the experiences of two countries: Hungary and Turkey.

"The risk of allowing the central bank to be perceived as a political tool is depressingly obvious, illustrated by even a cursory review of similar efforts overseas," Patterson warns. "Even if the American economy and financial markets are strong enough to moderate the impact of the Fed's tarnished reputation, the directional response seems clear: higher long-term borrowing costs for households and businesses and a weaker currency that would support inflation. Let's look at Hungary and Turkey."

Patterson continues, "Leaders of both countries, faced with budget deficits, inflation pressures and a desire to increase growth — sound familiar? — have broken institutional standards and changed laws to ensure that their central banks support the government’s political aims. That has usually led to lower interest rates aimed at speeding up the economy."

After Hungary, in 2011, "weakened" its central bank's "independence," Patterson notes, "all three major ratings agencies downgraded" the country's "sovereign credit rating to junk" — which made "borrowing costs higher" and caused "its currency, the forint, to fall."

READ MORE: Blatantly political': Outrage grows as Americans receive misleading email from Trump admin

"Turkey's central bank politicization has been even more extreme, with equally more significant financial market results," Patterson observes. "With inflation running at more than 15 percent — the country's target is 5 percent — President Recep Tayyip Erdogan, in 2018, issued a decree asserting his authority to appoint the central bank governor, deputy governors and monetary policy committee members, as well as to abolish experience requirements. That decision led both S&P Global Ratings and Moody's to lower their sovereign credit ratings for the country…. Since the 2018 election, the Turkish lira has lost 88 percent of its value against the dollar, according to Bloomberg data."

Patterson adds, "Only the Argentine peso fared worse among emerging currencies during that period."

The economist warns that Trump's "continued march toward a less-independent Fed could ignite concerns beyond U.S. borders."

"There is a reason both Republican and Democratic presidents in recent decades have publicly supported central bank independence," Patterson explains. "They have agreed on financial accountability and rule of law. They have also understood that even if the Fed makes mistakes, acting independently of politics supports its credibility, and that helps make the United States a more reliable, more attractive place to invest. Without that stability and predictability, the nation is in danger of losing what makes its economy and financial markets exceptional."

READ MORE: 'This is his king complex': Republicans split as Trump threatens to 'takeover' a 'pigsty'

Rebecca Patterson's full New York Times op-ed is available at this link (subscription required).