ECB's Lagarde warns of risk to world economy via Trump interference on Fed

[BRUSSELS] Steps by US President Donald Trump to remove Federal Reserve chairman Jerome Powell or Fed governor Lisa Cook would represent a “very serious danger for the US economy and the world economy”, said European Central Bank President Christine Lagarde on Monday (Sep 1).

Trump has repeatedly attacked the Fed’s chair, Jerome Powell, for not cutting the short-term interest rate and threatened to fire him. Trump is also attempting to fire Federal Reserve governor Lisa Cook.

“If US 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 told Radio Classique.

Lagarde also told Radio Classique that a ruling on Friday by a US appeals court that most of Donald Trump’s tariffs were illegal were adding a “further layer of uncertainty” to the global economic outlook.

Lagarde also warned that any government collapse in the currency bloc is a concern as the prime minister of her home country, France, appears likely to be toppled in a confidence vote next week.

The government in Paris is set to be forced to resign on Sep 8 as opposition parties refuse to back the plans of Prime Minister Francois Bayrou for sharp spending cuts and tax increases. 

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“All risks of governments falling in all euro area countries are worrying,” Lagarde said. “Markets evaluate risks, and we’ve seen the country risk increase in recent days,” she added, in response to a question on France.

The prospect of renewed uncertainty over how France can tackle what’s now the euro area’s widest budget deficit with a bitterly divided parliament has reignited investor concerns. Sell-offs in French bonds last week drove up borrowing costs relative to Germany to highs not seen since January.