Where are the guardrails and checks on US President Donald Trump’s radical agenda? This is a question that was asked frequently in the first three months of his second term as America’s financial and business community came to terms with his fierce assault on the global trading system and his contempt for the rule of law.
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Yet in the past few months, another, more alarming question has arisen. What if there are no effective restraints on Trump’s policies, or too much damage is done before sufficient pressure is brought to bear on him?
At one point, it appeared Trump was swayed by financial markets. Partial climbdowns and apparent U-turns convinced Wall Street that his bark was worse than his bite, encouraging investors to pile into the Taco (Trump Always Chickens Out) trade.
Even so, the Taco narrative was a dangerous and misconceived trading strategy, not least because it annoyed Trump and added to his recklessness and unpredictability. Moreover, when sentiment improved sharply because markets expected Trump to back down, he felt emboldened to test the limits of investors’ tolerance.
This is one of the reasons Trump launched an all-out assault on the independence of the US Federal Reserve. By trying to fire Lisa Cook, one of the Fed’s governors, over unsubstantiated claims of mortgage fraud before she joined the central bank, and even boasting that his administration “will have a majority [on the Fed board] very shortly”, Trump is seeking to bend monetary policy to his will.
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Nobel Prize-winning economist Paul Krugman said Trump’s attempt to bully the Fed into cutting interest rates is “a policy disaster in the making”. Coming just weeks after Trump fired the head of the Bureau of Labour Statistics, claiming preposterously that weaker-than-expected data on jobs was manipulated to make him look bad, the attack on the Fed marks a more severe and consequential erosion of governance standards in the United States.
