Politico reports:

Europe’s central bankers were cautiously critical Tuesday of U.S. President Donald Trump’s efforts to oust a top Federal Reserve official.

They expressed unease at the potential spillover effects from a growing political threat to the independence of the world’s most important central bank.

Trump invoked sweeping executive powers to unseat Federal Reserve Governor Lisa Cook in an unprecedented challenge to the legally enshrined independence of the Fed on Monday, after housing chief William Pulte accused her of mortgage fraud earlier this month.

Through her lawyers, Cook said she wouldn’t resign and would challenge Trump’s “illegal” move to get rid of her.

Independence has underpinned financial markets’ trust in central banks for half a century and has provided much of the basis for the U.S.-led international economic order.

Across the Atlantic, Cook’s counterparts at the European Central Bank are alarmed that Trump’s moves could not only set a dangerous precedent — but also have a tangible impact on their own policymaking, which is inexorably influenced by the course charted by the Fed.

“Attacking the independence of the Fed, the Trump administration inflicts a serious damage to the American economy,” said Bank of Greece Governor Yannis Stournaras in emailed comments to POLITICO. “The implications will come sooner rather than later.”

When independence is threatened, monetary policy “becomes dysfunctional, it starts doing things that it shouldn’t do,” European Central Bank President Christine Lagarde told Fox News in an interview Sunday before Trump’s move to oust Cook, but after he had already signaled he wanted her out.

“The next step is disruption. It is instability, if not worse. So I think that this should not be debated,” Lagarde added.

Chief among officials’ worries is that, without independence, the faith on which central banks’ stewardship of financial markets has been painstakingly built over decades will begin to crumble, not only in the U.S. but in Europe too.

That would, in turn, erode central bankers’ ability to steer the economy and manage inflation — at a time when their credibility is already taking a beating amid deep dissatisfaction over management of the economy after the pandemic.

Independence is “paramount” for central banks’ abilities to gently steer economies away from uncontrolled price growth, and “undermining it means risk of higher future inflation, higher interest rates, and more painful cost to the society from containing inflation,” Bank of Latvia Governor Mārtiņš Kazāks said in a series of posts on X that he highlighted to POLITICO when asked about Cook.

Others expressed a similar wariness, with one Governing Council member, granted anonymity to candidly discuss the sensitive subject, fretting that a breach of the Fed’s independence could have “enormous repercussions on the financial world,” while also stressing the basic principle of due legal process that’s not been afforded to Cook.

“It’s terrible, nobody would believe us anymore if we go that route,” the official added. He compared the situation to Turkey, where President Recep Tayyip Erdoğan’s years-long encroachment into the affairs of the Turkish central bank sparked hyperinflation that’s yet to subside. [Continue reading…]

Paul Krugman writes:

[A] claim of mortgage fraud requires both that the borrower make a deliberate misrepresentation — as opposed to making a mistake on a complicated process — and that this misrepresentation caused financial harm to the lender. We’ve seen no evidence at all for either proposition.

This is not a case a nonpolitical Justice Department would even consider bringing to trial, or have much hope of winning. And again, it has no relevance at all to Cook’s work at the Fed, providing zero justification for dismissal “for cause.”

But of course Trump’s attempt to fire Cook has nothing to do with allegations of fraud. Her real crime, in his mind, is that she isn’t an obedient minion (oh, and that she’s a black woman.) The goal of his attempt to fire her is to replace independent Fed officials with lackeys who will take Trump’s orders — not just by getting rid of Cook but by intimidating everyone else. [Continue reading…]

Greg Sargent writes:

Cook just announced that she’s suing to challenge her firing, and people with experience in mortgage law and governance tell me that Cook’s lawyer, well-known D.C. attorney Abbe Lowell, has a major opening in the coming litigation. He can use the discovery process to shed light on why Pulte targeted these mortgages and on any White House involvement in that.

“I’d be highly confident that Abbe is going to explore every avenue of discovery to determine what role, if any, the White House played in instigating this investigation,” Benjamin Klubes, a former acting general counsel at HUD and now a white-collar criminal defense attorney in D.C., told me. Notably, Lowell is also [New York Attorney General Letitia] James’s attorney, so he’ll have two avenues to explore. “Abbe will definitely focus on Pulte’s role to determine how and why he chose these targets [Cook, James, and Sen. Adam Schiff],” Klubes said.

If and when all this becomes the story—when Pulte’s misconduct and any White House involvement in it gets flushed out into the open—it may suddenly start looking very different from what Trump hoped. [Continue reading…]