President Trump’s efforts to fire Federal Reserve Gov. Lisa Cook could endanger central bank independence, according to long-time investor Rebecca Patterson.
“We shouldn’t ignore this, this is a big deal about what’s going on,” the former Chief Investment Strategist at Bridgewater Associates told CNBC’s “Fast Money” this week.
Currently a senior fellow at the Council of Foreign Relations, Patterson has been analyzing how politics and policy shape global markets for over 20 years. She warns that politicizing the Fed could erode its legitimacy and have long-term economic consequences.
From economics studies of countries that have lost their institutional integrity, Patterson points to familiar patterns such as declining stock market performance, increased inflation and long-term yields, depreciation of currencies, and reduced foreign direct investment.
Patterson warns that the unique role of the US is because the world’s largest economy doesn’t immunize it.
She warns that the change in cooks is Trump’s first move to stack the Fed with loyal policymakers and the Fed to promote lower rates.
Patterson believes the market could initially respond positively to lower rates. However, she warns that the long-term effects can be damaged.
“In the short term, investors may infer that lower interest rates that support growth are good for profit,” she wrote in a special email to CNBC. “However, over time, higher inflation will hurt consumption and be reflected in revenue expectations.”
If Trump controls the Fed more strongly, she believes it will rush the yield curve, raise expectations of inflation, weaken the dollar and cause higher gold prices.
Patterson’s heart is not whether it will result in politicizing the Fed.
“Our moments may not be that fast or easy,” she said during the interview. “But looking at other countries that have gone this way, [it] If you don’t pay attention, please tell me where you are heading. ”
