Two different headlines appeared at the end of last week, coming from two sides of the world, seemingly unrelated to one another but in reality sharing a solid point in common.
The Financial Times reported Donald Trump saying he would replace the Federal Reserve’s Chairman Jay Powell if he is elected President in November. He accuses Powell of being “too political”, and of planning to make a move that would help the Democrats ahead of the elections, i.e. cutting rates. As we discussed in our recent review of the January 2024 FOMC meeting, rate cuts are probably coming this year, as was already signalled in December, but this has nothing to do with political motivations. As we discussed in our global outlook, the US economy, while remaining resilient with a still-strong labour market, has started to feel the effects of the monetary tightening of the past 22 months, and therefore it’s about time for the Federal Reserve to start to ease its policy stance.
But clearly Trump is trying to bully Powell as he did in 2018, when he was saying that Powell was keeping rates unnecessarily high. At that time, Powell resisted for as long as he could, but in 2019 the FOMC implemented 3 “precautionary cuts” as it thought that the US’ economic momentum was weakening. The intention of replacing Powell as central bank governor must be part of his plan of being “dictator on day one,” as he emphatically announced in December (thankfully he added “only on day one…”). Given the US spoils system, this was the announcement of his intention to replace all the civil servants from the hated “deep state” that could potentially oppose his intention of ruling without constraints. These intentions clearly signal Trump’s inclination to bend the US liberal democracy into an electoral democracy at best, and potentially into in an electoral autocracy, if he has enough time and energy to do so.
Examples of this behaviour are abundant. As the headlines from Turkey show, the recently-appointed central bank governor of the CBRT, the Turkish central bank, had to resign following a defamatory media campaign that lasted for weeks. Hafize Gaye Erkan, the bank governor, had increased rates from 8.5% in June last year to 45% recently, to prevent a further slide of the Turkish lira and attempt to stop the further increase of Turkey’s inflation, which had overcome the 80% mark only a few months ago, and now is above 60%, after briefly touching 40%. This must has sounded ridiculous to President Recep Tayyip Erdoğan, whose bizarre economic theory, dubbed Erdonomics, suggests that interest rate hikes cause a rise in inflation. Erkan will be replaced by deputy governor Fatih Karahan, a former Federal Reserve economist; he will be Erdoğan’s sixth central bank governor in five years.
These examples, coming from two different areas of the world, one in the developed Americas, the other from emerging Europe, show that autocrats, or wannabe autocrats, behave the same way no matter where they are found: they have little tolerance for critics and for independent authorities that could seemingly pose obstacles to their unconstrained rule.
