‘Serious danger’ for world economy if Trump controls Fed: ECB chief

(Reuters): It would be very dangerous for the global economy if U.S. President Donald Trump were to take control of U.S. monetary policy, European Central Bank (ECB) chief Christine Lagarde warned on Monday.

Trump is seeking to remove Federal Reserve (Fed) Governor Lisa Cook in a move that critics say aims to fill the central bank with officials who will support his calls for lower interest rates. The U.S. president has also repeatedly attacked the Fed’s Chair Jerome Powell for not cutting the short-term interest rate and threatened to fire him.

Lagarde told France’s Radio Classique that it would be “very difficult” for Trump to “completely swing the majority of the Fed’s policymaking body in his favor.”

But, she said, “if he were to succeed, it would be a very serious danger for the U.S. economy and for the world economy.”

She noted that the central bank’s policies affect price stability and aims to ensure “optimal” employment.

“If U.S. monetary policy were no longer independent and instead dependent on the dictates of this or that person, then I believe that the effect on the balance of the American economy could, as a result of the effects this would have around the world, be very worrying, because it is the largest economy in the world,” Lagarde told Radio Classique.

Lagarde also said that a ruling on Friday by a U.S. appeals court that most of Trump’s tariffs were illegal was adding a “further layer of uncertainty” to the global economic outlook.

Fall of any eurozone government would be ‘worrying’
Moreover, Lagarde evaluated the political crisis in France and said that the country is not currently in a situation that would need the International Monetary Fund (IMF) to intervene, but adding that any risk of a government falling in the eurozone is “worrying.”

Lagarde said fiscal discipline remained imperative in France, and that she was looking very attentively at the French bond spreads situation.

French opposition parties have said they will bring down the minority government in the Sept. 8 confidence vote whi,ch Prime Minister Francois Bayrou unexpectedly announced last week, over his unpopular plans for a budget squeeze in 2026.

This has hit the stock and bond markets of France, which is the eurozone’s second-largest economy.

French banks have come under pressure, but the ECB chief said the French banking system was better placed compared to the 2008 financial crisis.

“I believe that the French banking system is well capitalized, that it is in better shape than it was during the last major financial crisis, that it is well structured, well supervised, and has responsible players,” she said.

“I do not believe that the banking system itself is in any way the source of the current risk, but markets, in all circumstances of this nature, assess the risk,” she added.