El-Erian Warns Federal Reserve’s Independence Showing ‘Worrisome Cracks’ Due To Animosity Between Trump And Jerome Powell

Chief economic advisor at Allianz, Mohamed El-Erian, on Thursday warned that the Federal Reserve’s independence is beginning to show “worrisome cracks” as Fed Chair Jerome Powell continues to stay in his position despite a spate of public attacks by President Donald Trump.

In an opinion piece for Yahoo Finance, El-Erian observed that the attacks on the Fed as an institution have “broadened and deepened” since his suggestion in July that Powell should step down to protect the independence of the central bank.

“This animosity, born of years of disagreements since Powell’s appointment in Trump’s first term — and, some may even say, broken promises — has now metastasized,” El-Erian said, adding that this has now expanded into other spheres as well, apart from just monetary policy. This, he says, includes Powell’s competency and politics, as well as the costs of the Fed’s building renovation project.

The economist also drew attention to the Trump-Lisa Cook issue, which he says could force Powell to launch an internal investigation even as Cook stood her ground and said President Trump had no legal authority to oust her.

If the Trump administration manages to replace Cook with one of its loyalists, El-Erian says it could result in a potentially complicated reappointment process of the presidents of the 12 regional Federal Reserve banks. This, he says, could threaten to “politicize the entire system in an unprecedented and unpredictable fashion.”

Meanwhile, U.S. equities edged up in Thursday’s pre-market trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.15%, while the Invesco QQQ Trust (QQQ) gained 0.13%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was down 0.04% at the time of writing.

Also See: GDP Grows At 3.3% In Q2, Economy Expands At A Faster Clip Than Previously Estimated

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