Trump attacks the most powerful man in the global economy. The battle is lost regardless of the outcome
Shifting interest rates by tenths of a percent has become one of the watched actions in the field of Czech banking policy. Until recently, few knew that this was a key role of the Czech National Bank (CNB). Now they are a sharply watched topic, which significantly influences the price of mortgages in particular. The same is true in the United States. However, fluctuating interest rates are a much more important topic in the USA. The events in the largest global economy also interest President Trump, who approaches it in his own way.
The Federal Reserve System (FED) is the name of the American central bank. Why this bank is not named similarly to the Czech National Bank (CNB), is one of the typical features of American English. We can compare it, for example, to the situation where the American Secretary of State does not hold the functional title of foreign minister, but is rather referred to as the State Secretary (the literal translation would be perhaps "state secretary").
The basic role of the FED is very similar to the Czech National Bank. Both institutions should be independent of political actors and both should monitor the inflationary health of the economy. This is facilitated by lending rates, which determine at how much banks can lend. In our country, the key areas of discussion are primarily the interest rates on mortgages and on the other hand, on savings accounts.
Look for credit cards behind everything
Of course, this applies to all credit products and this is also one of the key differences between the practical life of an American and a Czech. While we are slowly transitioning from cash payments to debit card payments, in the US a slightly different principle of shopping in the retail sector has been functioning for many decades.
While in our country payment by card was only an imaginary expression of American television production in the 90s, in the US these credit cards were commonly used for payment and still are. It still applies that someone doesn't know what is the principle of a credit card. The payment by credit card is on a debt and the debit card is sucking money directly from the account.
While in the Czech Republic credit cards are used marginally and are the currency of passionate travellers, in the USA they dominate. The astute don't need telling that while our interest rates are mainly monitored by those eager to refinance their property with mortgages, in the USA the problem concerns everyone.
Perhaps here lies the root of Trump's placement of Fed Chairman Jerome Powell on his list of life-and-death enemies. Powell competes for a place on this list in close competition with low-pressure showers, which the American president wants to deal with decisively!
US independence matters, Trump could misjudge this
Trump would like to see low interest rates. His voters would instantly see low operating costs on their credit cards. In addition, Trump's past as a real estate dealer probably also manifests itself in this respect. Real estate purchases are most easily profitable when money is cheap. You borrow at a low interest rate, invest the money into bricks and since a lot of people will do it, the price of real estate will soar.
However, among the Fed's tasks is not to facilitate the real estate business, but to monitor inflation, because if the price level goes up, it can have a fundamental impact on confidence in the system. The USA in its history does not have chapters with a political regime other than one where the system of democratic rules works. One of these rules is also the independence of the Fed, but this in the person of Jerome Powell lies heavy on Trump's stomach, as he does not obey him.
"That's ultimately the problem. The perception of independence really matters, and that's the damning consequence of attacks that really raise doubts about whether the Fed can be as firm as central bankers want,"
Economist Sarah Binder from George Washington University explained the enchanted circle of the current situation for BBC.
If it were in the best interest of the economy, citizens, and the level of inflation to lower interest rates, the aftertaste of the loss of the central bank's independence would remain. However, an erosion of confidence in the system could backfire on everyone, including Donald Trump. Indeed, central bankers may also be struggling with this problem.
Sources: author's text, commentary, BBC
