A key leader in the world economy is warning that undue interference in the Federal Reserve’s operations by President Donald Trump could pose a serious economic risk to the U.S. and the rest of the world.
European Central Bank President Christine Lagarde said in an interview with Radio Classique on Monday that efforts to remove Fed Chair Jerome Powell or Fed Governor Lisa Cook would “represent a very serious danger for the U.S. economy and the world economy.”
“If U.S. monetary policy were no longer independent and instead dependent on the dictates of this or that person, then I believe that the effect on the balance of the American economy could, as a result of the effects this would have around the world, be very worrying, because it is the largest economy in the world,” Lagarde explained.
Trump has repeatedly threatened to fire Powell, who he appointed as chairman in 2017, for not cutting the Fed’s benchmark federal funds rate – though he has backed off those threats this summer as Powell’s term is set to expire in May 2026.
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The president is also attempting to fire Cook after Trump ally and Federal Housing Finance Agency Director Bill Pulte filed criminal referrals alleging Cook committed mortgage fraud before joining the Fed. Cook has not been charged with a crime, while Cook’s lawsuit to block her firing by Trump is currently playing out in court.
It’s unclear whether federal courts will agree that a criminal referral, in the absence of actual criminal charges being filed or an eventual conviction, meets the standard needed to remove a Fed governor “for cause.” At other federal agencies, “for cause” is generally interpreted as applying to cases of malfeasance or misconduct.
Trump’s effort to fire Cook is the first time in U.S. history that the president has attempted to remove a sitting Fed governor, and the novelty of the situation could result in the case reaching the Supreme Court. If the president is able to successfully remove Cook, it would allow him to appoint a replacement who could favor his stance on cutting interest rates.
The independence of the Federal Reserve from political influence in its monetary policy decisions has been credited as being a pivotal safeguard for the U.S. economy and its role in the global economy. Economic research has found that political interference in central banks around the world has contributed to higher inflation, weaker currencies and reduced stock prices.
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The Fed has held off cutting interest rates at all five of its meetings this year amid uncertainty over the extent to which Trump’s tariffs will either represent a one-time price hike or create more persistent inflationary pressures.
The two most popular inflation gauges – the consumer price index (CPI) and the personal consumption expenditures (PCE) index that the Fed prefers – have remained above the Fed’s 2% target rate throughout this year and have shown signs of rising as tariffs work their way through the economy.
The July PCE print released last week showed headline PCE was up 2.6% from a year ago, while core PCE, which excludes volatile food and energy prices, ticked higher to 2.9%. In July’s CPI data, headline inflation was up 2.7% year-over-year while core CPI was up 3.1% from last year.
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However, a weak July jobs report raised concerns about a deterioration in the labor market and Powell signaled in his speech at the central bank’s annual conference in Jackson Hole that the changing balance of risks to the Fed’s dual mandate could open the door to a rate cut.
Policymakers on the central bank’s Federal Open Market Committee (FOMC), the Fed panel responsible for monetary policy decisions, will get a fresh look at inflation data when the August CPI print is released next week.
That inflation data along with this week’s August jobs report will help inform Fed policymakers ahead of their next meeting and interest rate decision on September 17.
The market is pricing in a 25-basis-point cut to the Fed’s benchmark federal funds rate at the September meeting, with the CME FedWatch tool showing an 89.7% probability of a cut of that size versus a 10.3% chance of rates staying at their current target range of 4.25% to 4.5%.
Reuters contributed to this report.
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