Tensions continue between US President Donald Trump and US Federal Reserve (Fed) governors. To increase pressure on the Fed, the US president recently dismissed Lisa Cook, a member of the Fed's Board of Governors. He cited Cook's false statements regarding mortgage loan purchases as the reason for the dismissal. It appears President Trump will further increase pressure on the Fed and do everything in his power to ensure a more rapid interest rate cut. Trump understands that his tariff policies will lead to higher domestic prices. Price increases are not solely due to tariffs. The depreciation of the US dollar has also begun to have an inflationary effect. To compensate, he is attempting to reduce borrowing costs by lowering interest rates. Since the 1990s, it has become accepted policy for central banks to use monetary policy options independently of political authority to achieve set inflation and employment targets. Past experience has shown that loose monetary policies implemented due to election cycles have, on average, led to higher inflation.

To make monetary policy decisions independent of election cycles, central banks have been granted independence in policy implementation. In this context, independent central bank policies can be cited as one of the reasons why inflation has followed a lower and more stable course globally since the 1990s. However, after the 2008 global crisis, central banks faced a challenging global and domestic environment. The slowdown in global trade, falling growth rates, and risks to financial stability presented new challenges for central banks. Macroprudential policies began to be widely used to maintain financial stability alongside inflation. Because inflation has remained relatively stable, supporting economic activity and employment has become more common than in the past. A study published by the Bank of International Settlements (BIS) clearly demonstrates this. According to the results of the study, while the importance of inflation for monetary policy has gradually diminished, the importance of production, unemployment, and financial stability has increased. This result will undoubtedly have macroeconomic consequences. First and foremost, we can say that there is a relationship between central banks' commitment to keeping inflation low and stable and the long-term inflation rate. The more committed central banks are to their inflation targets, the lower and more stable long-term inflation will be.

Central banks' determination to keep inflation low can lead to lower growth and employment in the short term. However, when we look at the medium- and long-term effects, the situation reverses. Countries with low and stable inflation have higher average growth rates and a more stable trend. We already know from recent history how high inflation disrupts consumption and investment behavior in the medium to long term. If confidence in Fed policies is permanently eroded, average inflation in the US is likely to be higher. This translates to higher interest rates in the US. In other words, although Trump wants to lower interest rates by pressuring the Fed, the opposite may be true for market interest rates. We have previously observed that market interest rates rise despite central bank interest rate cuts during periods of crisis of confidence and rising country risk premiums. Rising interest rates in the US would be the last thing we want right now. High market interest rates mean a decline in asset prices, including stocks. It will also become more costly for companies and countries to borrow in dollars. In addition, when budget deficits in the US rise even further, Trump's policies may cause harm instead of just trying to make a difference.