Since taking office, U.S. President Donald Trump, who has continuously called for interest rate cuts, pressured the Federal Reserve (Fed) during his visit to its headquarters. This marks the first visit by a U.S. president to the Fed since George W. Bush in 2006.
Experts point out that if the independence of the Central Bank, which implements monetary policy based on inflation rates and economic conditions, is threatened, it could lead to significant economic side effects. The government is aiming to rapidly boost the economy by increasing the money supply, but if taken too far, this could lead to a decline in the value of the currency and soaring prices, which would increase the burden of living expenses.
On the 24th (local time), President Trump visited the Federal Reserve headquarters in Washington, D.C. The visit was justified by inspecting the renovation site of the Fed building, which has received a massive budget. At this occasion, Trump said, "I think he (Jerome Powell, Chairman of the Fed) will do the right thing (cut interest rates), though late." He pressured for a rate cut.
The Wall Street Journal (WSJ) evaluated Trump's visit to the Fed as "a political theater designed to amplify pressure on the Central Bank." The WSJ reported that it is "part of an unusual campaign aimed at undermining Powell's public image and pressuring for a reduction in the benchmark interest rate."
There are interpretations that Trump's pressure on the Fed for interest rate cuts is to reduce the federal government's liability interest burden. Currently, the national debt of the United States stands at $35 trillion (approximately 5 quadrillion won), with annual interest reaching $900 billion (approximately 1,223 trillion won). The Washington Post analyzed that "the reason (Trump) threatens to fire Powell if he doesn't cut rates is that he wants to lower funding costs." It also noted that "reducing mortgage, student loan, and auto loan interest rates could help alleviate the cost of living burden faced by Americans."
This is not the first time President Trump has demanded interest rate cuts. Shortly after taking office, on January 23 this year, he stated that "I will demand that rates be cut immediately," without directly mentioning the Fed.
The government's words that undermined the independence of the Central Bank, like those of President Trump, were not good.
Turkey faced a disastrous economic report after its president interfered with the Central Bank. In 2020, when the Central Bank of Turkey raised the benchmark interest rate from 10.25% to 19% three times to halt inflation, President Recep Tayyip Erdoğan dismissed Central Bank Governor Naci Ağbal in March 2021. This manifested Erdoğan's belief that "high interest rates are the root of all evil."
After Ağbal was dismissed just four months after his appointment, investors' distrust of the Turkish market grew, and the lira collapsed by 17% in a single day. By the end of that year, Turkey's consumer price index (CPI) inflation rate soared 36.08% compared to the previous year. During this period, monthly rental prices for dwellings in Istanbul rose from 1,500 lira (approximately 130,000 won) to 2,500 lira (approximately 220,000 won). The costs of groceries and transportation, which directly affect ordinary people, rose by 43.8% and 53.7%, respectively.
As the inflation continued to be brutal, Turkey only began to raise the benchmark interest rate in 2023. Despite increasing it from the previous 8.5% to 50% last year, it has failed to control inflation. As of last month, Turkey's CPI inflation rate was recorded at 35.1%.
Argentina's Central Bank governor was also fired for sticking to an independent monetary policy. In 2010, then-President Cristina Fernández ordered the Central Bank to hand over part of its foreign exchange reserves to the government, citing a need to repay external debt. However, Martín Redrado, the governor of the Central Bank of Argentina, opposed, stating that he could not arbitrarily adjust the dollar reserves, and was ultimately dismissed.
The inflation rate announced that year by the National Institute of Statistics and Census (Indec) under the Argentine government was 10.9%. Although this rate is considerably high, it faced criticism for being manipulated. At that time, private research institutions indicated that Argentina’s inflation rate was between 23% and 27%. The Argentine government demanded clarification and evidence from the private economic research institutes that reported high inflation rates and imposed fines.
Professor Kim Byung-kyum of Myongji University stated, "The government wants to boost the economy in the short term, so it tries to lower interest rates and increase currency supply," adding that "if it proceeds as the government wishes, it will disrupt the value of the currency and price stability. This is why the independence of the Central Bank is important."