Something akin to a ‘happy, but challenging state of affairs.’ — Fed Chair Jerome Powell, on the central bank’s current situation. The Federal Reserve now faces a historically low hiring rate just as inflation from tariffs hits. The former president’s efforts to replace Federal Reserve Governor Lisa Cook are made all the more urgent by today’s economic situation. Such a change would dramatically tip the balance of power within the Fed, particularly with inflation presently being the Fed’s hot button issue.
In a letter to the Federal Reserve Board, Trump made his plan to fire Cook clear. He justified this radical decision based on completely unqualified allegations about a now-former administration official. If Trump’s appointees are confirmed, they will form a Trump majority on the seven-member board. This new majority will dramatically increase his power over the agency responsible for setting interest rates. At present, two of the Fed governors appointed by Trump—Michelle Bowman and Christopher Waller—already have seats on the board.
Lisa Cook has gone out of her way to signal her intent to stay put. In her response, she stated her commitment to her role:
“I plan to continue to carry out my duties to help the American economy.” – Lisa Cook
Cook is under increasing pressure to hold his ground. This pressure grows even stronger as Trump makes the rounds himself, running a campaign on lowering interest rates. The former president’s recent visit to the Federal Reserve was notable for its rarity, emphasizing his determination to influence the central bank’s policies directly.
In the past, presidents of the United States have taken a keen interest in the Federal Reserve’s decision-making process—especially during election years. The Volcker Fed raised short-term interest rates 20% in 1981 in order to crush inflation. President Richard Nixon attempted to bully then-Fed Chair Arthur Burns before the 1972 presidential election. This is the cautionary tale — as most economists will tell you, it was Nixon’s 1971 actions that led to the runaway inflation.
As Trump continues to try to install his majority on the board, some legal experts are cautioning against potential long-term consequences. Jeremy Kress emphasized the importance of central bank independence:
“The U.S. economy has been generally prosperous and stable for the past century in part due to an understanding of central bank independence that prevents presidents from meddling with the Fed for their own political purposes. That’s what’s at stake here.” – Jeremy Kress
The implications of Cook’s possible removal go far beyond short-term rate policy. Time and again, central bankers have found themselves under acute political pressure from political leaders to cut interest rates. This strategy is effective at increasing short-term economic activity, but it jeopardizes long-term economic stability. Alan Blinder remarked on this trend:
“Many presidents and politicians over the decades have complained about the Fed’s interest rate policy and made clear what they wanted instead.” – Alan Blinder
In addition, as of February, the members of the Federal Reserve board will be responsible for approving the appointment of presidents of individual Federal Reserve banks. A future Trump-appointed majority would have the ability to shape these critical appointments and move the Fed’s priorities even more.
Mark Spindel noted that this situation has historically not ended favorably for presidents attempting to exert control over the central bank.
“This certainly hasn’t ended well with presidents in the past.” – Mark Spindel
The current context underscores the Federal Reserve’s dual mission: maximizing employment while controlling inflation. Hiring is slowing down. Tariffs—yes, those tariffs—are pushing prices up. This makes it especially important to strike a careful balance that supports the economic recovery without allowing inflation to spiral out of control.
