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Author: Zhao Yuhe, Wall Street News
U.S. President Trump is pushing for the removal of Federal Reserve Director Lisa Cook.Media analysis said that if the removal is successful, he will have the opportunity to further expand his influence on the White House on the Federal Reserve by controlling the majority of the seven-member council.
According to media reports, Trump has made it clear that he hopes the Fed will cut interest rates significantly, and the Fed, led by Chairman Jerome Powell, has been facing continued attacks from the White House this year, whether it is monetary policy decisions or cost overruns on a large building renovation project.
Trump called on Cook to resign Wednesday after FHFA Director Bill Pulte accused Cook of lying on a loan application for more favorable terms and suspected of mortgage fraud.Cook’s term will last until 2038, and she then responded that she would not resign due to coercion.
Claudia Sahm, chief economist at New Century Advisors and former Federal Reserve economist, said
“This is a new way this administration is trying to control the Fed, and they are using all the means they can find to achieve this control.”
Analysts said that the tough blow to Cook highlights how willing the Trump administration is to expand its influence on the White House.Previously, the Fed has been historically isolated from political pressure in terms of interest rate decisions.The White House has previously taken similar measures against political enemies such as California Senator Adam Schiff and New York Attorney General Letitia James.
Media said this also casts a shadow on the Fed’s upcoming annual meeting in Jackson Hole, Wyoming on Thursday night.Powell will deliver his last keynote speech to the global central bank governor attending the meeting on Friday morning, and he is unlikely to make a clear commitment to cut interest rates as Trump wishes.
Trump’s “his own” wins a majority of seats in the council, which may not guarantee the implementation of the White House’s intentions
Fed officials have ignored Trump’s request for lowering interest rates so far this year, citing the inflation risks that his tariffs may bring.
Analysts believe that if Cook leaves, it will give Trump the possibility of appointing four Federal Reserve directors, giving him a majority in the seven-member board of directors.Trump has appointed two of the current directors in his first term and has not long ago nominated his Economic Advisory Board Chairman Stephen Miran to fill the third seat recently appointed by Biden-appointed Adriana Kugler.
This strategy is in line with Trump’s approach on the board of directors of other agencies in the federal government, which is an attempt to enrich the board with Republican nominees.
However, the media believes that even if Trump wins a majority in the board of directors, it does not mean that he can get what he wants in interest rate decisions.
Trump’s nominees still need to seek support from the larger Federal Open Market Committee (FOMC) responsible for making interest rate decisions; not to mention, there is no guarantee that these new council members will simply implement the president’s intentions.
Another key question is who Trump will nominate to replace him when Powell’s presidential term expires in May next year.Whether Trump has the opportunity to appoint a fifth director depends on whether Powell decides to continue to perform his term of directorship, which will expire in 2028.
William B. English, a former senior economist at the Federal Reserve and currently a professor at Yale University, said.
“Even if there is another nomination for the director, there is no guarantee that the new president will win support in the FOMC to promote a looser monetary policy.”
Interest rate decisions are made by the FOMC, a committee composed of 12 policy makers in Washington and across the country who have the right to vote on interest rate decisions.This means that even if four Trump nominees support a policy motion, they still need to win the support of at least three other members with voting rights to form a majority.
All seven directors have permanent voting rights, and so does the New York Fed chairman.The remaining four voting seats are rotated annually between the governors of the 11 other regional reserve banks.
Gaining a majority in the council may give the White House greater influence in other policy areas, including banking regulatory affairs, which fall under the authority of the council and are not among the FOMC.The Council is also responsible for approving or vetoing the re-election application of the President of the Regional Reserve Bank for a term of five years.
“Owner” may not be reliable.
Some analysts believe that it is still unknown whether Michelle Bowman and Christopher Waller, nominated during Trump’s first term, are willing to cooperate with the White House will.
Bowman and Waller voted against the meeting in July when the FOMC decided to keep the benchmark interest rate unchanged, proposing a 25 basis point cut, citing signs of deterioration in the labor market and policy responses are needed.
But as one of the popular candidates to replace Powell as Fed chairman, Waller recently emphasized the importance of central bank independence, warning that if leaders lack investor trust, inflation expectations and market interest rates may rise.
Derek Tang, an economist at LH Meyer/Monetary Policy Analytics, said.
“Maybe Trump’s idea is that he can get four directors who are fully loyal, but we can’t confirm whether the current director will actually be loyal.”
“The new directors probably will be like this because that’s exactly how they are selected. But Bowman and Waller, currently in office, have already put forward economic reasons for their claims of supporting loose policy.”
If Cook leaves, it may prompt Powell to remain as director
Powell has not yet publicly stated what plans he will make after his term expires in May next year.Successful Fed chairmen have traditionally left leadership after leaving the president, and can remain in office even if their directorship term is on the rise.
However, some analysts believe that if Cook leaves early, it may put pressure on Powell, 72, to continue to serve as director to resist intervention from the political level to a certain extent.
Andrew Brenner, head of international fixed income at NatAlliance Securities, wrote in a report Wednesday,
“That’s why we think Powell will grit his teeth and insist on staying on the Fed until his term expires in January 2028.”
