Editor’s Note: Frida Ghitis, a former CNN producer and correspondent, is a world affairs columnist. She is a frequent opinion contributor to CNN and The Washington Post and a columnist for World Politics Review. The opinions expressed in this commentary are her own.
President Trump has shown his hand. Over two years into his presidency, he has proven that he governs in the model of the 21st-century populists who have taken office across the world. As the 2020 election draws closer, he will intensify his attacks on the Federal Reserve and its chairman, Jerome Powell. And his pressure will become far more determined if economic growth shows signs of slowing.
We know this because Trump is following the playbook of other authoritarian populists: embracing nationalist rhetoric and policies, developing an us-vs.-them narrative ahead of the elections and undercutting the independence of the Central Bank.
American democracy has deeper roots; it is stronger than in other countries where it has come under assault. But we can see many of the same patterns replicated by other nationalist populists with authoritarian tendencies. The model requires discrediting independent media, demonizing critics, politicizing the judiciary and assaulting the very notion of truth.
Attacking the independence of the central bank is a more arcane element of the strategy, but it’s also vital. And precisely because it is less “sexy,” it attracts less attention than, say, calling the media the “enemy of the people,” or suggesting that opposition critics of color should “go back” to their countries. But that makes it no less important.
Central bank independence does not guarantee prosperity, but it makes it more likely that crucial monetary policy is designed with the intention of doing what is best for the economy and what is best for the country.
Without it, decisions on interest rates and other economic tools can be used for purely political purposes for the benefit of a political figure. Without central bank independence, the bank might, for example, lower interest rates to stoke short-term economic growth in order to support one candidate over another, even if the long-term impact is harmful to the economy, spiking inflation and killing off a recovery.
Populist leaders have caused economic mayhem in the past, and they see political benefits in short-term gains, even if it means they are putting their own economies at risk.
Venezuela’s late president Hugo Chavez and his friend, former Argentine President Cristina Fernandez de Kirchner, both took control of their countries’ central banks. It wasn’t the only reason their economies spiraled down, but the loss of bank independence made it more difficult for the country to tap their breaks on their harmful economic decision-making. Chavez tried to formally end the autonomy of the Central Bank in a 2007 referendum. The referendum failed, but he ultimately took control of the bank by appointing devout loyalists, using national reserves to fund pet projects and laying the groundwork for what became one of history’s worst peacetime economic disasters.
Fernandez fired the central bank chief when he wouldn’t do her bidding. Her presidency left the country in economic tatters, with reserves depleted and a huge budget deficit and out-of-control inflation.
More recently, Turkish President Recep Tayyip Erdogan — who says high interest rates cause inflation, the opposite of empirical evidence — recently fired the head of the central bank after he reportedly wouldn’t do his bidding, and blamed the bank for the country’s economic problems.
Turkey’s economy is in trouble, and Erdogan had promised he would take direct control over monetary policy. The markets reacted to the firing with barely concealed alarm, posting sharp drops in the local currency.
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Hungary’s Viktor Orban, who proudly boasts that he leads an “illiberal democracy,” has not only decimated independent media and rule of law, he has also consolidated control over the central bank after clashing with the European Union. His original plan to excise the bank’s autonomy came under such sharp criticism that he backed down, but he promptly installed one of his devoted loyalist as the bank’s chief. Now he and his nationalist Fidesz party influence the media, the judiciary and the central bank.
Even in India, Prime Minister Narendra Modi’s nationalist BJP party governs the central bank. The governor of the Reserve Bank of India resigned last year after reportedly coming under intense pressure before national elections to take actions he thought would be harmful to the economy — and not coincidentally helpful to the BJP’s electoral prospects.
In the United States, Trump has already started pressuring the Fed to lower interest rates. Economists and Fed governors are divided on whether that’s the right course of action. The economy remains strong, so Trump is on firm ground on that key electoral issue for now. But if the long recovery starts to soften, expect Trump to launch a no-holds-barred assault on Powell.
The Fed now appears poised to do what Trump wants: Cut rates. If the economy stalls, or if Trump’s polls make him nervous, expect Trump to go on the offensive against the Fed’s independence. Americans will have yet another front to defend.