US President Donald Trump said loudly what he is usually called. His threats to dismiss the President of the Federal Bank, Fed, Jerome Powell, if he does not reduce interest rates, are motivated by a mere desire: so that the government can add about $ 4 trillion to federal debt at a lower borrowing.

Last week, the president sent Powell a handwritten note: “You have to reduce the interest rate – very much! Hundreds of billions of dollars are lost! “

At a public event to promote the Republican bill of 4 trillion. Dollars, Trump made his wishes even more clearly: “We have to work hard for cuts in it. And this guy could do it so easily … Every interest rate unit is … 300 billion. So if we reached 1%, we will save almost a trillion dollars with just one signature. No job, without losing anything. It’s an accounting issue. “

The Fed, therefore, would simply have to reduce interest rates to 1% (ie over 3 percentage points) to reduce the cost of debt service added by the new Republican Party tax law.

It is an extremely clear wording of what economists call “fiscal dominance”. That is, in practice, the government seeks to subjugate the Fed’s independence and control of inflation to its budgetary needs, concealing the cost of huge debt increase.

The last time the debt management of the Ministry of Finance dictated US monetary policy was during World War II. At that time it was somewhat understandable, as government lending increased dramatically to finance the war. But this policy had bad consequences: it led to high inflation in the post -war period. Inflation was again under control only when the Fed secured the 1951 agreement with the Ministry of Finance, a hub that restored its independence to determine the short -term interest rates.

Of course, the lower long -term interest rates would be welcome for many reasons, mainly to reduce interest rates on mortgage, student and consumer loans. But it is more likely to see persistently high inflation if the confidence in the Fed’s ability to keep it at low levels is lost.

The five -fold increase in duties by the Trump administration has put the Fed in a difficult position, as it increases the risk of inflation to rejuvenate inflation after the already high levels caused by the Coronovirus pandemic. Although most would agree that the Fed Monetary Policy Committee has a reasonable opportunity to wait a few months to assess the impact of duties before making new interest rates, the White House has implied that this is a reason for dismissal.

The government should be careful about pushing the Fed. The markets collapsed on April 21 after Trump’s threats to replace the Fed president before his term expired: the shares retreated, the dollar faded and the 10 -year -old government bond rate increased sharply. This is the kind of reaction usually found in emerging markets such as Argentina and not in the United States.

In the end, it is the investors who will decide how much they need to be compensated to keep the new huge stock of long -term government bonds. Any indication that the president is putting a new Fed president to maintain the government’s borrowing costs at the expense of the fight against inflation will lead to higher interest rates, as investors will require greater returns to offset losses from increased inflation.

And this means that the cost of serving the expanding national debt will increase even further and the accessibility will be even further removed from most Americans.