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Messing with the Fed’s independence could result in higher inflation and joblessness, Austan Goolsbee said.
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Trump has ramped up the pressure on Fed Chair Powell to cut interest rates in recent weeks.
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The White House has said Trump’s team is looking into potentially removing Powell before the end of his term.
Meddling with the Federal Reserve’s ability to independently set interest rates could result in dire consequences for the economy, Chicago Fed President Austan Goolsbee said on Monday.
The top official underscored the importance of Fed independence in an interview with CNBC on Monday, adding that political meddling with the central bank could result in hotter inflation and higher unemployment.
“When there is interference over the long run, it’s going to mean higher inflation, it’s going to mean worse growth and higher unemployment, because there’s just going to be a little less willingness to step up and do the hard things when the moment is tough,” Goolsbee said.
Goolsbee didn’t comment directly on Donald Trump, who has ramped up pressure on the Federal Reserve to cut interest rates in recent days.
Last week, the president posted on Truth Social that the Fed should lower rates ASAP and that “Powell’s termination cannot come fast enough.”
On Friday, Kevin Hassett, the director of the National Economic Council, said Trump’s team was looking into potentially firing Powell.
The president continued his criticism of Powell in a Truth Social post on Monday, calling the Fed chief “Mr. Too Late” and “a major loser.”
The president’s renewed attacks on Powell jolted investors on Monday, with stocks cratering and traditional safe-haven assets like Treasurys and the dollar falling.
There are risks if the Fed ends up cutting interest rates prematurely. Doing so could lead to a fresh bout of inflation and undermine the central bank’s credibility to maintain stable prices, economists have warned. That dynamic could potentially lead to stagflation, a worst-case scenario where the economy slows while inflation stays high.
Trump has pressured the Fed to lower rates before and flirted with the idea of firing Powell, whom he appointed in 2018, since his first term. Trump spoke to his advisors in 2018 about potentially removing Powell, and in 2019, he asked White House lawyers to look into the matter, Bloomberg reported.
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