Federal Reserve Board and the president: Eroding Central Bank Independence would Cause Enormous Harm

Editorial

15:21 JST, August 28, 2025

If the independence of the U.S. Federal Reserve Board is shaken, it will cause significant harm not only to the U.S. economy but also to the global economy. It is concerning that U.S. President Donald Trump is heightening his attempts to intervene in the Fed.

Trump has announced his intention to fire Lisa Cook, a Fed governor. As a reason, Trump cited mortgage fraud allegations, including claims that Cook falsified real estate records when purchasing two homes, securing favorable loans for both by claiming them as her primary residences.

Cook reportedly has objected to Trump’s move to remove her from the post and intends to file a lawsuit.

The Fed Board of Governors consists of seven members, including the chair. Out of respect for policy independence, their terms are long, lasting 14 years. Cook, who was nominated by former President Joe Biden, is scheduled to serve until 2038. A dismissal of a board member by a president would be extremely unusual.

The Federal Reserve Act establishing the central bank includes a provision that allows dismissal of board members for good cause. However, dismissing a member immediately upon the emergence of allegations would be too hasty. It is essential to carefully consider whether the individual is fit to fulfill the grave responsibility of the job after thorough investigation.

Trump has repeatedly pressured the Fed to cut interest rates. His dismissal move should be seen as an extension of his conflict with the Fed, rather than a response to Cook’s alleged wrongdoing.

Price stability is a prerequisite for sustained economic growth. Ensuring the central bank’s independence from the government is critically important.

In general, administrations tend to favor monetary easing in the hope of boosting the economy. There are numerous past lessons, not only in the United States, in which continued excessive monetary easing driven by political pressure led to high inflation and dealt a severe blow to the economy.

If Cook is ultimately dismissed, members who comply with Trump’s wishes are expected to hold a majority on the board, with four such members. Trump’s dominance over the Fed would be significantly strengthened.

Japan cannot help but worry that the adverse effects of steering monetary policy solely to meet Trump’s wishes could spread globally.

The Fed’s monetary policy significantly impacts not only the U.S. but also global financial markets, including the stock, foreign exchange and bond markets. If monetary policy is distorted by pressure to cut rates, deepening market turmoil will become unavoidable.

Since cutting the interest rate late last year, the Fed has kept its rate unchanged for five consecutive meetings this year in light of risks posed by the high tariff policy and other factors accelerating inflation.

On Aug. 22, Fed Chair Jerome Powell indicated a possible rate cut at the next meeting in mid-September, due to downside risks to employment. To maintain public trust, it is crucial for the Fed to carefully assess prices and economic conditions before making decisions.

(From The Yomiuri Shimbun, Aug. 28, 2025)