The Dismissal Of Fed Governor Lisa Cook Triggers US Monetary Legal And Political Uncertainty

DKI Governor The Fed Lisa Cook. (Photo: Special)

JAKARTA - Head of Bank Permata economist Josua Pardede conveyed US President Donald Trump's decision to fire a member of the Fed's Board of Governors, Lisa Cook, over alleged mortgage fraud, has sparked legal uncertainty and concerns over the independence of the US central bank.

Meanwhile, Lisa Cook rejected the decision, stating that the President did not have the authority to fire members of the Fed, and was preparing to sue legally.

Josua assessed that this incident sparked two issues at once, namely the Fed's potential for monetary independence erosion and legal uncertainty whether this dismissal was legal and effective immediately or protracted in court.

He explained, based on Bloomberg Intelligence alone, allegations are generally not enough to meet standards and Cook has the chance to win for a job recovery even though the process is likely long.

On the other hand, he added that political and legal pressure emerged, namely a letter from the Department of Justice (DOJ), signed by Edward R. Martin, prompting Fed Chairman Jerome Powell to fire Cook while starting an investigation.

Meanwhile, a private law memo states that the President can dismiss members of the Fed if there is evidence of a violation, although criminal charges are not required.

"This explains why the market immediately reads this case as a test of the independence of the Fed," he told VOI, Tuesday, August 26.

In addition, the S&P rating agency has also warned that the political dynamics that weaken the Fed's institutions and independence.

Josua said that from the market side, the US dollar exchange rate weakened, the yield from the 2-year-old US government bond (UST 2Y) fell, describing the expectations of faster cut in interest rates.

Sementara itu, imbal hasil obligasi pemerintah AS bertenor 2 tahun (UST 30Y) justru naik karena kekhawatiran terhadap inflasi, defisit fiskal, dan potensi melemahnya independensi The Fed sehingga ini mendorong terjadinya steepening pada kurva imbal hasil.

"Jika pemecatan membuka kursi bagi gubernur yang lebih dovish, pasar mempercepat pricing penurunan suku bunga, namun jika independensi The Fed tergerus, premi risiko jangka panjang bisa naik," ucapnya.

Meanwhile, the yields of 2-year US government bonds (UST 30Y) actually rose due to concerns over inflation, fiscal deficits, and the potential to weaken the independence of the Fed, so this prompted Steepening on the yield curve.

"If the dismissal opens up seats for governors who are more dovish, the market accelerates the pricing of lower interest rates, but if the independence of the Fed is eroded, long-term risk premiums could rise," he said.