President Trump’s efforts to fire Federal Reserve Governor Lisa Cook could jeopardize the central bank’s independence, according to longtime investor Rebecca Patterson.
“We shouldn’t ignore this at all. This is a big deal what’s going on,” the former Bridgewater Associates chief investment strategist told CNBC’s “Fast Money” this week.
Patterson, now a senior fellow at the Council on Foreign Relations, has spent more than two decades analyzing how politics and policy shape global markets. She cautions that politicizing the Fed could erode its legitimacy and have long-term economic consequences.
Drawing from her economics research on countries that have lost institutional integrity, Patterson notes a familiar pattern: weaker stock market performances, higher inflation and long-term yields, depreciating currencies, and reduced foreign direct investment.
Patterson warns the United States’ unique role as the world’s largest economy does not make it immune.
She warns replacing Cook would likely be the Trump’s first move to stack the Fed with loyal policymakers who will push for lower rates.
Patterson thinks markets may initially react positively to lower rates. However, she warns the longer-term effects could be damaging.
“In the short-term, investors might reason that lower rates supporting growth are good for earnings,” she wrote in a special email to CNBC. “Over time, though, sustained higher inflation is going to hurt consumption which will get reflected in earnings expectations.”
If Trump gains greater control over the Fed, she thinks it will steepen the yield curve, boost inflation expectations, weaken the dollar, and spark higher gold prices.
The question in Patterson’s mind isn’t whether politicizing the Fed will have consequences — it’s when.
“Our moment might not come as quickly or easily,” she said during the interview. “But looking at other countries who have gone down this road, [it] tells us where we’re headed if we’re not careful.”