President Donald Trump’s effort to dismiss Federal Reserve Governor Lisa Cook has triggered widespread concern among economists and financial experts, who warn that such actions could compromise the independence of the U.S. central bank. The move, initiated over allegations of irregularities in Cook’s mortgage application, has been met with resistance as she has refused to resign and intends to challenge the decision in court. n nCook holds a key position on the Federal Open Market Committee (FOMC), which determines the nation’s benchmark interest rate by balancing inflation risks against employment trends. Adjusting this rate involves complex trade-offs: raising it may slow economic activity, while lowering it could accelerate inflation. Trump has consistently advocated for reduced rates to stimulate growth, downplaying inflation risks — a stance that diverges from traditional monetary policy norms. n nHistorically, while presidents have voiced opinions on interest rates, no sitting president has attempted to remove a Fed governor for cause. This unprecedented step raises alarms about political interference in monetary decisions. Experts argue that weakening the Fed’s autonomy might erode confidence in its ability to manage economic downturns or inflationary spikes effectively. n nThe Economic Policy Institute cautioned that if rate decisions appear driven by presidential preference rather than economic data, trust in the institution could collapse. Elizabeth Wilkins, former chief of staff at the Federal Trade Commission, warned that such interference threatens market stability and could amplify inflation, ultimately harming workers and the broader economy. n nAdministration officials maintain that the issue centers on accountability, not policy influence. Commerce Secretary Howard Lutnick emphasized the need to investigate whether mortgage fraud occurred, asserting that public officials must uphold integrity. However, critics like Peter Boockvar, an independent economist, suggest the real motive is reshaping the Fed with appointees more aligned with Trump’s push for rate cuts. n nAlthough Cook was appointed by President Biden in 2022 and generally favored lower rates, her removal would allow Trump to install a like-minded member. Still, this wouldn’t guarantee a policy shift, given the current FOMC composition. Markets have reacted cautiously: major indices dipped slightly, the dollar weakened modestly, and gold prices remained stable. However, the yield on 30-year Treasury bonds rose, signaling investor concern about long-term inflation. n nLegal experts anticipate the conflict may reach the Supreme Court, especially after its recent ruling limiting presidential authority over certain agency appointments. Deutsche Bank’s George Saravelos highlighted the risk of ‘fiscal dominance,’ where monetary policy becomes subservient to political goals. He noted that markets seem underwhelmed by the threat, despite its potential severity. n n— news from NBC News
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Trump risks economic calamity by tampering with Fed independence
Economic and financial analysts are warning that President Donald Trump’s attempt to fire Federal Reserve governor Lisa Cook risks undermining the central bank’s independence — something that could ultimately put U.S. households’ finances at risk. n nLate Monday, Trump moved to fire Cook over allegations of mortgage fraud. He cited a “criminal referral” from Federal Housing Finance Agency Director William Pulte that alleged discrepancies on Cook’s mortgage application documents. Cook has refused to step down, and on Tuesday she said she was planning to file a lawsuit challenging Trump’s move. n nCook serves on the Federal Reserve’s committee for setting interest rates throughout the economy. To determine where that rate should be, the committee members weigh risks to unemployment and inflation. When the job market starts to look weak, the Fed tends to lower rates. When the risk from inflation is greater, it tends to increase them. Both moves carry risks: Higher rates can stifle economic growth, while lower rates can lead to ballooning inflation. n nTrump has called for lower rates since he took office, citing a general desire to bolster economic growth while dismissing concerns about inflation. While past presidents have expressed views about monetary policy, Trump’s influence attempts are largely unprecedented — no Fed member has ever been removed for cause. n nIt’s setting off alarm bells, not simply over disagreements about interest rate levels, but for what undue influence on the Fed could do to the economy. Academics have consistently concluded that meddling with the independence of central banks like the Federal Reserve can lead to worsening inflation, since it removes a key check on the government’s tendency to borrow as much money as it can. n n”Presidential capture of the Fed would signal to decision-makers throughout the economy that interest rates will no longer be set on the basis of sound data or economic conditions — but instead on the whims of the president,” the Economic Policy Institute said in a statement. n n”Confidence that the Fed will respond wisely to future periods of macroeconomic stress — either excess inflation or unemployment — will evaporate,” it added. n nInterfering with the Fed’s independence “will make markets less stable and fuel inflationary pressures — hurting working people and weakening the economy as a whole,” Elizabeth Wilkins, who was chief of staff to the chair at the Federal Trade Commission under Presidents Barack Obama and Joe Biden, said in a statement. n nTrump administration officials have dismissed concerns about threats to the Fed’s independence and doubled down on the accusations against Cook. n nSo far, the committee has not budged on rates. Although its membership consists mostly of appointees named by Biden, the members historically avoid political conflicts. But by removing Cook, who was appointed by Biden in 2022, Trump would be able to appoint another voting member who sees things his way. That would still not create a majority — and analysts have noted that Cook was somewhat more inclined to lower rates. n nBut the message from Trump couldn’t be clearer, experts say. n n“We have to be honest that Lisa Cook was likely targeted … and then disposed of without due process,” Peter Boockvar, an independent economist and market strategist and author of The Boock Report, said in a note. The goal, he said, was to “remake the Fed with people who will be most inclined to cut interest rates.” n n“The real question should be, did she commit mortgage fraud?” Commerce Secretary Howard Lutnick said in an appearance on CNBC on Tuesday. “Yes or no, and if you did commit mortgage fraud, please get out of the federal government. Get out of the seat of the governor of the Federal Reserve and go away.” n nA White House representative did not immediately respond to a request for comment. n nAs of Tuesday morning, market reaction has been somewhat muted. All three major stock indexes were slightly lower in early trading, while the dollar’s value against a basket of other currencies declined somewhat. Gold prices have also not moved much. But the yield, or return demanded by investors for lending to the government, on the 30-year Treasury note rose — a sign investors are worried about longer-term inflation concerns. n nThe dispute over Cook is likely to wind up in the Supreme Court, which recently issued a ruling that said while the president has wide latitude to control federal agencies, his ability to make personnel decisions at the Federal Reserve may be more limited. n nSome analysts believe markets are not taking the threat to the Fed’s independence seriously enough. In a note to clients, George Saravelos, head of foreign exchange research at Deutsche Bank, raised the specter of “fiscal dominance” — in which the president has too much say over monetary policy and interest rates. n n“There is no question in our view that the Fed is now subject to intensifying fiscal dominance risks,” he wrote. “What is a bigger surprise to us is that the market is not more concerned.”