{"id":243985,"date":"2026-01-21T07:27:09","date_gmt":"2026-01-21T07:27:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/243985\/"},"modified":"2026-01-21T07:27:09","modified_gmt":"2026-01-21T07:27:09","slug":"a-stooge-in-the-us-fed-could-blow-out-inflation-in-australia-but-trump-is-unlikely-to-get-his-way-australian-economy","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/243985\/","title":{"rendered":"A stooge in the US Fed could blow out inflation in Australia \u2013 but Trump is unlikely to get his way | Australian economy"},"content":{"rendered":"

The Reserve Bank of Australia<\/a> could lose some control over its ability to set interest rates independently if Donald Trump is successful in his bid to take control of the US central bank, experts warn.<\/p>\n

Ten days after the US Department of Justice announced a criminal investigation<\/a> into the Federal Reserve\u2019s chair, Jerome Powell, the supreme court on Wednesday will hear arguments in a legal case that will determine whether the president has the power to fire Lisa Cook, a member of the Fed\u2019s board of governors.<\/p>\n

National Australia Bank\u2019s chief economist, Sally Auld, said if the court upholds Trump\u2019s efforts to sack Cook then that could spell the beginning of the end of the central bank\u2019s independence<\/a>.<\/p>\n

The consequences<\/a> of Washington DC wresting control over monetary policy could be severe, and ultimately lead to higher inflation.<\/p>\n

It would likely trigger a crisis in confidence in the American currency and financial assets, such as stocks and bonds, Auld said, with ramifications for other central banks.<\/p>\n

In this worst case scenario, \u201cthe magnitude of the depreciation of the US dollar would be quite significant\u201d.<\/p>\n

\u201cIf the Aussie dollar jumped 15%, that would make our currency expensive and that in itself might be enough to demand the RBA cut rates. Their hand could be forced.\u201d<\/p>\n

So far, investors remain untroubled with the unprecedented attack on the Fed, and this calmness in financial markets \u201cfeels a little bit out of sync with the way people are sensing the world at the beginning of 2026\u201d, Auld said.<\/p>\n

Sign up: AU Breaking News email<\/a><\/p>\n

There are 12 members of the Federal Open Market Committee who have a vote on rate decisions.<\/p>\n

They include the seven members of the Washington DC-based board of governors, the president of the Federal Reserve<\/a> Bank of New York, and four of the remaining 11 presidents of the regional reserve banks (who serve one-year terms on a rotating basis).<\/p>\n

The Fed\u2019s next rate decision is due early on 29 January, Australian time, and will be the first made in the shadow of the looming threat of a Department of Justice criminal investigation into Powell.<\/p>\n

Even if Trump is unable to gain direct power over the central bank, as is likely, the political pressure and threats have already chipped away at the image of an independent institution.<\/p>\n

The chief economist at AMP, Shane Oliver, said a politically controlled Fed could keep rates lower for longer and \u201cend up with an inflation blowout\u201d that could smash the US dollar and drive Wall Street lower.<\/p>\n

Like Auld, Oliver believes the \u201cupshot could mean lower rates\u201d in Australia.<\/p>\n

\u201cA stronger Aussie dollar and lower interest rates; some Australians would think that\u2019s not a bad outcome. But the risk would ultimately be more inflation.\u201d<\/p>\n

Oliver said the prospect remained relatively distant.<\/p>\n

\u201cTo get to that point you\u2019d need to have Trump gaining complete control over the Fed. If he gets control of four of the seven governors, then he gets some control over who sits as president. That\u2019s when the guardrails around the Fed weaken.\u201d<\/p>\n

Successful or not, Oliver said Trump\u2019s push to overturn decades of political support for central bank independence would set a precedent for other populists around the world.<\/p>\n

\u201cFor Australia, the problem is that this is the world\u2019s most significant central bank. If the threats to independence are happening there, then it would happen here.\u201d<\/p>\n

There is already a constituency on the left who would be happy to abandon the principle of central bank independence.<\/p>\n

The Greens\u2019 economic spokesperson, Nick McKim, in September last year demanded Jim Chalmers \u201cshow some courage\u201d and exercise his legislative powers to \u201cdirectly override\u201d the RBA and force it to cut rates.<\/p>\n

Populist figures on the right, such as rising Liberal figures like Andrew Hastie and Senator Jacinta Nampijinpa Price, may choose to follow Trump\u2019s lead, especially should the RBA raise interest rates this year.<\/p>\n

Unions have been deeply critical of the RBA for keeping rates too high at the expense of jobs, but still publicly back its independence.<\/p>\n

Oliver said \u201cin some ways [Australia\u2019s institutional settings] are already weaker than the Fed\u201d.<\/p>\n

\u201cTo get a governor appointed in the US you have to go through a committee, whereas here you are just appointed by the Treasurer.\u201d<\/p>\n

Luci Ellis, Westpac\u2019s chief economist and a former senior RBA official, said Australia should still be able to pursue an independent monetary policy even in a world where the American central bank has been suborned by political interests.<\/p>\n

\u201cThere\u2019s no particular reason we have to follow what the Fed does,\u201d Ellis said, pointing to recent evidence of how the two countries\u2019 monetary policy paths have diverged.<\/p>\n

\u201cIt would be bad if the biggest and most powerful central bank lost some of its operational independence, but it would not in and of itself change how the RBA would need to behave.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The Reserve Bank of Australia could lose some control over its ability to set interest rates independently if…\n","protected":false},"author":2,"featured_media":243986,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":{"0":"post-243985","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-new-zealand","11":"tag-newzealand","12":"tag-nz"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/243985","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=243985"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/243985\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/243986"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=243985"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=243985"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=243985"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}