Trump’s Move to Take over the Fed Adds More Uncertainty to the Economy

The Washington Post

16:36 JST, August 27, 2025

President Donald Trump’s bid to oust Federal Reserve governor Lisa Cook marks his boldest move yet to assert more control over the independent central bank. But undermining the bank’s autonomy, experts say, holds potentially dangerous long-term consequences for the fragile U.S. economy.

No president has ever tried to fire a sitting Fed governor, and it is far from clear whether Trump can do so now. While the president can remove a Fed governor for good cause, Trump’s allegations against Cook – including claims of past mortgage fraud – are so far unproven, and Cook’s attorney said she plans to aggressively challenge the move and will file a lawsuit.

For months, Trump has demanded steep interest rate cuts that he says would juice growth, lower mortgage costs and ease the government’s debt burden. He has also derided Fed Chair Jerome H. Powell as a “moron,” a “numbskull” and a “stiff” for resisting cuts. Forcing out Cook could give Trump enough votes to shift the seven-member board, marginalize Powell and drive interest rates lower in the coming months.

A White House official said Tuesday that Trump’s move to overhaul the Fed is driven by “the substance of how they have been setting monetary policy,” as opposed to politics. White House officials don’t expect the issue to engage or move the average voter. However, the White House saw Powell’s speech in Jackson Hole, Wyoming, last week – when he said he was open to an interest-rate cut next month – as validation that Trump was right in accusing the board of overemphasizing concerns about inflation and neglecting broader economic growth, the official said.

“We saw the Fed acknowledging that they were mistaken and we were right,” said the official, who spoke on the condition of anonymity to discuss internal conversations.

Economists across the spectrum say the economy is in a particularly delicate spot as Trump’s tariffs drive up prices on consumer goods and threaten to push inflation higher in the months ahead. Powell underscored those concerns last week even as he signaled openness to cutting rates, pointing to a “curious” labor market where both hiring demand and worker supply have slowed – raising the risk of sharper layoffs and rising unemployment.

Because inflation has stubbornly remained above the Fed’s 2 percent target, and started rising over the summer, policymakers probably have limited room to cut rates without risking another surge in prices.

“Even if the Fed wants to keep inflation low and stable, it may not be able to if the president is rooting through the backgrounds of people he disagrees with and threatening them with criminal prosecution,” said Michael Strain of the conservative American Enterprise Institute. “This threatens prosperity by weakening the rule of law, which is itself one of the great pillars of prosperity.”

Politically, attacking the Federal Reserve probably doesn’t cost Trump anything with his supporters, polls suggest. A Gallup poll from September 2024 showed the central bank enjoying far stronger support among Democrats than Republicans, even before Trump’s attacks. Only 19 percent of Republicans rated the Fed’s performance as “excellent” or “good,” compared with 48 percent of Democrats, although that partisan divide mirrors opinions of other federal agencies.

But Trump’s attempt to push out a sitting Fed governor midterm underscores how far a determined president can go in jeopardizing the Fed’s independence. Trump’s insistence on lower interest rates raises the risk that the central bank might lag in fighting inflation. Such a delay could backfire on Trump, pushing long-term borrowing costs higher for mortgages and other loans if investors lose confidence in the Fed’s ability to control inflation and therefore demand higher returns.

On Tuesday, the major financial markets shrugged off the news, but the U.S. dollar edged down overnight as markets around the world grew skittish about the Fed’s independence.

The broader threat to markets, analysts warn, is “Trumpification” of the Fed’s board – a steady erosion of the legal protections meant to shield future leaders from presidential pressure, said Krishna Guha of Evercore ISI.

In targeting Cook, Trump appears to be seeking more vacancies on the Fed board, accelerating the point at which Trump-aligned governors could hold a majority. An unexpected opening emerged this month when Fed governor Adriana Kugler announced her resignation. Trump said he was “very happy” about the vacancy and quickly appointed Stephen Miran, head of the White House Council of Economic Advisers, to fill the seat until January, when Kugler’s term was set to expire.

The fight over Cook could cast a cloud over Miran’s confirmation, which would consume considerable Senate floor time for a position he would occupy for only a few months.

Already, some Senate Republicans have chafed over a proposal the Trump administration floated on Capitol Hill to allow Miran to effectively keep one foot in both doors – the Fed and the White House, according to people familiar with the discussions. The White House would like for Miran to go to the Fed without resigning from the Council of Economic Advisers. Senate Republicans are said to have balked at the unusual idea, at least in part because Miran’s loyalties would remain with the administration in such a scenario.

If Cook is replaced and Miran confirmed, Trump could gain a majority of governors pushing for rate cuts; two of his first-term appointees have already signaled support for lower rates. Removing Cook would also make it easier for the president to install more administration-friendly heads of the 12 regional Fed banks, who vote on interest rates. All the Fed bank presidents are up for renewal in February, a process requiring board approval.

“The Reserve Bank presidents could be deeply compromised,” said David Wilcox, an economist at Bloomberg Economics and the Peterson Institute who previously directed research for the Fed board. “Some arbitrary number of them could be rejected, not because of their suitability for office but because of their pliability on the conduct of monetary policy.”

Central bankers who gathered at the Kansas City Fed’s annual conference in Jackson Hole last week privately expressed unease about the institution’s ability to withstand escalating attacks from Trump. Some warned that his pressure campaign could have global repercussions. If Trump weakens the Fed’s independence, officials from some countries said, leaders elsewhere may be emboldened to follow suit, undermining fragile efforts to insulate monetary policy from politics.

European Central Bank President Christine Lagarde, who attended the meeting in Wyoming, cautioned against political interference in monetary policy, warning that economies risk dysfunction if governments try to dictate interest rates.

“The independence of any central bank is critically important,” Lagarde said in a Fox Business interview that aired over the weekend. “We have to be accountable, we have to report back and answer all the questions of either Congress in the U.S. or the European Parliament, for me. But it’s vitally important that a central bank is independent.”

Lagarde added that her experience leading the International Monetary Fund showed how quickly things can unravel when that independence is challenged. “It becomes dysfunctional. It starts doing things that it shouldn’t do,” she said. “The next step is disruption. It is instability, if not worse. So I think that this should not be debated.”

Cook plans to file a lawsuit to challenge Trump’s unproven allegations that she provided false information while applying for two mortgages in 2021, about a year before she joined the Fed board, her attorney Abbe Lowell said.

“President Trump has no authority to remove Federal Reserve Gov. Lisa Cook,” said Lowell, a high-profile attorney whose clients have included Hunter Biden and Jared Kushner. “His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis.”

Even if substantiated, it’s uncertain whether the allegations constitute cause for removal. Adding to the complexity, the claims involve mortgages obtained before Cook was nominated to the Fed. Courts have yet to decide whether a governor can be fired for cause for actions that took place before joining the board.

“All of those things are undecided in the courts,” said Scott Alvarez, a former Fed general counsel.

In a statement, a Fed spokesperson said Cook would seek a court order that would allow her to continue to serve with the Fed while her litigation proceeds. The Fed has deferred any decision on Cook’s status because it is expecting a quick decision from a court, according to a Fed official.