Seeking to control the Fed, Trump risks upending a pillar of the global economy
- The San Juan Daily Star
- 20 hours ago
- 6 min read
By Ben Casselman, Colby Smith and Tony Romm
In his monthslong battle to take control of the Federal Reserve, President Donald Trump has tried threats, name-calling and — in one particularly memorable news conference with a hard-hat-wearing Jerome Powell — public humiliation. But he has always stopped short of the step that advisers warned could roil financial markets and upend a pillar of the global economy: attempting to fire a Fed official.
On Monday evening, he took that leap.
Trump’s target was not Powell, the Fed chair, at least for now. Instead it was Lisa Cook, one of the Fed’s six other governors. The president, in a letter, said he was removing Cook “for cause,” citing allegations of mortgage fraud. Cook has not been charged with any crime.
But Trump has made little secret of his true aim. He wants to control the Fed.
Janet Yellen, who was Powell’s immediate predecessor as Fed chair and later served as Treasury secretary under President Joe Biden, said she was “utterly alarmed” by the move.
“I feel this is now turned into an all-out assault on the Federal Reserve and an attempt by President Trump to really gain control over decision-making at the Fed,” she said.
Peter Conti-Brown, an expert on Fed governance at the University of Pennsylvania, said Cook’s firing, if successful, would mark “the end of central bank independence as we know it.”
In the short term, Trump’s attempt to fire Cook creates more uncertainty at a critical moment for Fed policy. Cook has vowed to fight her ouster, and on Tuesday her lawyer promised to file a lawsuit challenging what he called an “illegal action.” Legal experts say she has a strong case given that she hasn’t been convicted of a crime and the fraud allegations involve her private conduct, not her work at the Fed.
That sets up the potential for a protracted legal battle between Cook and the president, which almost certainly won’t be resolved before the Fed’s next meeting in mid-September, and perhaps not for many meetings after that. It is possible that the Republican-controlled Senate could confirm a replacement for Cook while she is still fighting for her seat, a standoff with no precedent in the Fed’s century-long history.
In the longer run, if Trump succeeds in replacing Cook, he will have reshaped the central bank in a way hardly anyone thought possible before last week.
For all the attention on Trump’s fight with Powell, it was always clear that the president would get to name a new Fed chair when Powell’s term ended next spring. Trump was also expected to get to fill another seat on the board in January — though that seat came open several months early when Adriana Kugler unexpectedly resigned this month.
But Cook’s term does not end until 2038, long after Trump will have left office. If he is able to fill both her seat and Kugler’s, he will have appointed a majority of the Fed’s seven-member board even before Powell steps down as chair.
And if Trump is able to fire Cook, that raises the possibility he could fire other Fed officials as well if they refuse to approve the interest rate cuts that he has demanded.
Officially, the president said he was firing Cook “for cause” over allegations that she made false statements in obtaining two mortgages in 2021, before she joined the Fed. Bill Pulte, director of the Federal Housing Finance Agency, first made those accusations on social media last week and subsequently referred the matter to the Justice Department, which opened an investigation.
Fed experts said the allegations against Cook are serious and should be investigated. But they said it was clear that they were part of a larger effort by Trump to install loyalists at the central bank. After Kugler stepped down this month, the president said he would nominate Stephen Miran, chair of his Council of Economic Advisers, to replace her.
“It’s a mistake to see this as being about Lisa Cook,” said Lev Menand, a professor at Columbia Law School who studies the Fed. “He’s trying to take control of the Board of Governors by pushing out, and throwing the full force of the federal government against them, to scare them into resigning.”
Yellen said she worried that Trump would target other members of the Fed’s policy-setting Open Market Committee, and either try to force them out or intimidate them into enacting his preferred policies.
“This is a strategy that can be used against potentially any member of the Federal Open Market Committee to try to gain control of the policy process,” she said. “It can make members of the Federal Open Market Committee very worried about expressing or acting on their views.”
Economists warn that if Trump succeeds in pressuring the Fed into cutting rates, it could lead to faster inflation in the short run and make it harder for the central bank to manage the economy in the long run, as businesses, investors and consumers lose confidence that policymakers are focused on basing decisions on evidence rather than politics.
“It seems clear that President Trump is working to undermine the independence of the Fed, which would lead to worse economic performance and higher inflation,” said Alan Blinder, a Princeton University economist and former Fed vice chair. “What American wants that?”
Economists have long warned that attempting to oust Fed officials could also cause panic in financial markets, particularly among bond investors, who count on the Fed to keep inflation low and the financial system stable. The threat of bond market turmoil has been one of the principal arguments that advisers to Trump have used to dissuade him from firing Powell in the past.
So far, however, Trump’s attempt to fire Cook has generated little reaction in financial markets. Yields on the 10-year Treasury note — which reflect the interest rates that investors demand to lend the government money — fell on Tuesday. That raised fears that Trump could be emboldened to take further steps to intervene in the Fed.
“If bond markets don’t worry, he’s going to keep going,” said Mark Spindel, chief investment officer at Potomac River Capital, who cowrote a book on central bank independence.
The administration’s attack on Cook appeared to be timed to cause the maximum amount of disruption inside the Fed, landing just as central bankers from around the world were beginning to gather in Jackson, Wyoming, for one of the most closely watched conferences of the year.
Powell and other Fed officials tried to keep the conference focused on the state of the economy and policymakers’ response to it. But from the start, it was overshadowed by the threats originating from the White House.
The irony of the timing is that Trump is stepping up his attacks on the Fed just as policymakers appeared poised to begin giving him the rate cuts he has long demanded. In his speech at the Jackson Hole conference on Friday, Powell gave his strongest indication yet that the central bank was ready to resume rate cuts as early as next month.
Trump’s frustration with the central bank dates back to his first term in office, when he lambasted Powell, whom he had appointed as chair, for refusing to cut interest rates. His anger intensified when he returned to office this year and the Fed paused its campaign of rate cuts, in large part out of concern that Trump’s own policies would drive up inflation.
Trump has repeatedly threatened to force out Powell. In July, he showed off the draft of a letter firing the Fed chair in a meeting with House Republicans. Later that month, he toured the Fed headquarters and sparred with Powell over cost overruns in the central bank’s building renovation project — something allies of the president, including Pulte, have suggested could give the president cause to fire him.
Through it all, Powell has pursued a strategy of protecting the Fed’s independence on monetary policy matters, while acceding to Trump’s demands in other areas. The central bank removed a “Diversity and Inclusion” section from its website, ended remote work arrangements for staff and froze hiring — moves that aligned with Trump’s executive orders, although the Fed framed its decisions as voluntary.
But Powell has consistently defended the principle of central bank independence, and has pushed back against suggestions that Trump could fire him. Asked shortly after the election if he would step aside if asked, Powell offered a one-word answer: “No.”
That strategy may not be working. Trump appears to be growing bolder in his attempts to take control of previously independent economic institutions, Spindel said. This month, he fired Erika McEntarfer, the head of the Bureau of Labor Statistics, after her agency reported unexpectedly weak jobs numbers.
“Look at August,” Spindel said. “How did August start? He fired the head of the BLS. How is August ending? He fired a sitting governor.”