US President Donald Trump on Monday dismissed Federal Reserve Governor Lisa Cook, in what analysts see, according to AP, as a dramatic step in his push to bring the central bank more firmly under White House control. In a letter posted to his Truth Social platform, Trump said Cook was being removed over allegations of mortgage fraud.
The claim had been raised last week by Bill Pulte, a Trump appointee at the Federal Housing Administration, which regulates Fannie Mae and Freddie Mac.
Cook, whose term was set to run until 2038, had previously said she would not step down. Her removal gives Trump an early opportunity to install a loyalist on the Fed board, pending Senate approval.
Trump has repeatedly criticised Fed Chair Jerome Powell for refusing to cut short-term interest rates. The president has demanded cheaper borrowing costs both to stimulate the economy and to lower the government’s debt payments.
Powell, who is due to speak on Friday at the annual Jackson Hole economic symposium in Wyoming, has argued the Fed needs to assess how Trump’s new tariffs on imports affect inflation. Powell said the Fed wants to see how the economy responds, a cautious approach that has angered Trump.
The president has also accused Powell of mismanaging the Fed’s $2.5 billion building renovation project and has threatened to fire him, though legal experts say the law offers Powell protection.
Why central bank independence matters
The Federal Reserve holds immense influence over the US economy. By lowering interest rates, it can encourage borrowing and boost growth; by raising them, it can cool inflation, though at the risk of higher unemployment.
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Economists argue, as per AP, that independence allows the Fed to take politically unpopular but necessary steps.
Many point to the 1970s, when then-Chair Arthur Burns bowed to pressure from President Richard Nixon to keep rates low before the 1972 election. The result was a surge in inflation.
Paul Volcker, who became chair in 1979 under President Jimmy Carter, pushed rates to nearly 20% to crush inflation. The move caused a deep recession and unemployment near 11%, but by the mid-1980s, inflation was under control. Economists frequently cite Volcker’s stance as proof of the value of an independent central bank.
Investors generally prefer a Fed free from direct political influence. If Trump attempted to fire Powell, markets would likely react sharply.
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Analysts say stock prices could tumble while bond yields and borrowing costs on mortgages, cars and credit cards would spike. “Most investors prefer an independent Fed,” AP reported, “partly because it typically manages inflation better without being influenced by politics but also because its decisions are more predictable.”
Limits on presidential power
While the president nominates Fed governors and the chair, subject to Senate confirmation, terms are designed to insulate them from short-term political cycles. Powell’s term as chair runs until May 2026.
Congress also shapes the Fed’s mission. Since 1977, the central bank has operated under a “dual mandate” to keep prices stable and pursue maximum employment, with stable prices defined as 2% inflation.
Earlier this year, the Supreme Court indicated in a ruling on other independent agencies that a president cannot dismiss the Fed chair purely for policy disagreements, but may remove them “for cause,” such as misconduct. Trump allies have hinted the building renovation project could provide such grounds, though Powell would almost certainly challenge any attempt in court.
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With Cook’s removal and a vacancy already left by Adriana Kugler, who stepped down on 1 August, Trump has the chance to reshape the Fed board more quickly than expected. He has nominated Stephen Miran, his top economic adviser, to join, but Senate confirmation will be required.
(With inputs from AP)