Donald Trump’s attempts to tighten his grip on US monetary policy severely threatens both the American and global economy, Christine Lagarde said on Monday.
“If he [Trump] were to succeed, it would be a very serious danger,” the European Central Bank (ECB) president told France’s Radio Classique.
Her comments follow Trump’s shock decision to fire US Federal Reserve Governor Lisa Cook last week, alarming economists who warn the move risks undermining the independence of the world’s most important central bank.
Cook, a close ally of Fed chair Jerome Powell, has refused to resign. Powell has repeatedly drawn Trump’s ire for refusing to cut interest rates to stimulate the US economy since his return to the White House in January.
The Fed is expected to rapidly slash interest rates over the next year, as fears of low growth have begun to outweigh concerns that Trump’s tariffs could trigger a resurgence in US inflation.
“The bar to derail a Fed rate cut on September 17 appears high,” Deutsche Bank analysts said on Monday, adding that investors are currently pricing in 140 basis points (1.4 percentage points) of rate cuts by the end of 2026.
This is “an amount of easing that since the 1980s has only occurred around recessions,” Deutsche noted.
The ECB, by contrast, is expected to hold its key interest rate at 2% at its meeting next week – well below the Fed’s current main policy rate of 4.25-4.5%.
Lagarde also expressed “concern” about the impact of France’s political turmoil on the eurozone economy, with premier François Bayrou expected to lose a confidence vote on 8 September amid widespread opposition to his deficit-slashing budget.
Bayrou’s surprise decision last week to call the vote caused French stocks and bonds to plunge, with the spread between French and Italian borrowing costs narrowing to their lowest levels in decades. Italy is traditionally seen as far riskier than France by investors.
Lagarde, however, downplayed fears that a French government collapse – which would be the third in a year – could trigger a repeat of last decade’s eurozone crisis.
“I believe that the French banking system [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.
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