As a financial crisis spread across the globe in September of 2008, the U.S. Federal Reserve gathered in an emergency atmosphere as requests flooded in from other central banks for access to dollars.

The “swap lines” that the Fed quickly approved helped ease intense financial stress in foreign markets, but also showed the U.S. central bank was prepared to stand behind the global system.

Would an “America First” Fed do the same?

The question is suddenly relevant for global economic officials and central bankers after moves by President Donald Trump to put two strong partisans on the Federal Reserve board.

Both economic commentator Stephen Moore and businessman Herman Cain have been critical of Fed policies, and Moore in particular has opposed the extraordinary measures employed to stabilise the economy through the deepest crisis since the Great Depression.

Should Trump shape a Fed that answers first to his politics, it could roil the landscape for other central banks, and for a dollar-dependent world financial system whose fortunes can swing dramatically based on Fed decisions.

“I’m certainly worried about central bank independence in other countries, especially … in the most important jurisdiction in the world,” said European Central Bank President Mario Draghi, in Washington for spring meetings of the International Monetary Fund and World Bank.


Trump’s decision to consider close political allies for the central bank comes at a sensitive moment for the world economy and the IMF. Fund Managing Director Christine Lagarde last week asked member countries to strive to “do no harm,” yet its largest shareholder, the United States, has become a concern.

Trump’s ongoing trade battles have been cited as a reason global growth is slowing, and the idea of a Fed stacked with officials looking first at the U.S. political calendar has overseas central bankers nervous.

The IMF has commended the steady evolution of Fed policy under chairman Jerome Powell, but Trump has demanded he cut rates and Moore has endorsed the idea.

The actions of one central bank often impacts the economies of other nations. But the rule of thumb is to set policy as much as possible on the basis of detached analysis, not to gain a short-term trade or political advantage.

If the Fed were to cut rates to counter a U.S. slowdown, it would be one thing. But juicing a mostly healthy economy to make Trump look good would send a bad signal – and hurt countries that are grappling with their own economic problems…Continue Reading

By Ian Dei

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