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President Trump’s attempt to fire Federal Reserve Governor Lisa Cook is an assault on the bank’s independence. It’s also an attack on what remains of congressional Republicans’ independence from him.
The president made clear Tuesday that his attempt to fire the Fed governor is part of a push to build a Trump-friendly majority on the central bank’s board — driving down the dollar and sending Treasury yields higher in a sign of ongoing investor uneasiness.
Cook plans to file a lawsuit challenging the firing, which stems from unproven allegations that she committed mortgage fraud. Trump said on Tuesday he’s prepared for a legal fight and already has a list of “very good people” to replace Cook, though he didn’t provide specific names.
If Trump can force Cook out, he’d have another Fed seat to fill with a monetary policymaker who’s more open to his push for aggressive interest rate cuts. Even before then, Republican senators will get a chance to air their disapproval of Trump’s hit to the central bank’s independence when they take up his nominee to replace departing Fed Governor Adriana Kugler.
It’s not clear whether some GOP lawmakers are prepared to stand up to the president, even in defense of the Fed’s ability to govern itself when it comes to monetary policy. Most Republicans were reluctant to weigh in Tuesday on the attempted Cook ouster, with only a few backing the move.
“It’s breaking new ground. But I don’t know whether the law allows it or not. I haven’t studied that law yet,” Sen. Todd Young, R-Ind., said at the Capitol.
Trump, during a lengthy Tuesday Cabinet meeting, disputed the notion that he’s weaponizing the government to look into officials he dislikes before predicting that “we’ll have a majority very shortly” on the Fed.
“Once we have a majority, housing is going to swing, and it’s going to be great,” Trump added.
A single member of the Senate Banking Committee, which must approve Trump’s Fed picks, could thwart either Trump’s nominee to replace Kugler or his eventual pick to replace Cook, should the firing survive a court challenge. Several Republicans on the committee previously demonstrated a notable openness to defending the Fed as the president seeks to constrain its independence.
They include Sen. John Kennedy, R-La., who warned Trump against firing Chair Jerome Powell over the Fed’s renovation, and Sen. Thom Tillis, R-N.C., who said that “terminating Chairman Powell risks a protracted legal battle with potential economic consequences.”
Tillis is retiring and has indicated he may be an unpredictable vote over his last year in office; his office declined comment on Tuesday as Republicans waited for more information about Cook’s firing.
Yet before senators hold any confirmation hearings, they’ll contend with Cook’s continued presence on the Fed as she battles the firing in court. A spokesman for the central bank signaled in a lengthy statement on Tuesday that it would “abide by any court decision” on her employment but proceed under the status quo until then.
“One test is what they say about her removal in this situation … [because Trump] will only go as far as congressional Republicans let him go,” said Graham Steele, a former Treasury Department official and past regional Fed staff member.
Know More
The president can legally fire a Fed official “for cause,” but most leave of their own accord before it gets to that point. Cook has said that “no cause exists under the law.”
If Cook is convicted of mortgage fraud, “it’s very reasonable to argue that a person who has been convicted of a financial felony should not be a Fed governor,” Michael Strain, director of economic policy studies at the conservative American Enterprise Institute, told Semafor.
Still, “it is impossible to ignore the context here — and the context is that the president is trying to bully the Fed into doing what he wants on interest rates, and is willing to threaten policymakers with criminal prosecution as a way to settle policy disputes,” Strain added.
If Trump successfully replaces Cook, they could shift the entire central bank apparatus in his direction. With two of his nominees already serving as Fed governors, two more would give him a majority.
And if those four choose to hold up greenlighting regional Fed presidents in February, they would effectively make it easier to cut interest rates by lowering the number of policymakers who can vote on the issue.
“It’s much more dangerous than it seems,” Tim Mahedy, who previously served as chief of staff to the Federal Reserve Bank of San Francisco’s president, told Semafor.
If Trump’s play works, he added, “you’ve basically changed the structure of the Fed, and you’ve created a very limited monetary policy committee that would be much more susceptible to influence.”
Eleanor, Burgess, and Shelby’s View
Trump has steamrolled any congressional Republican who might disagree with him on just about every topic so far this year — except the Fed.
That may be about to change.
If Trump’s allegation that Cook committed mortgage fraud can be proven, it’s far more likely the GOP Congress will fall in line. But if it’s not, some Senate Republicans may stiffen their spines to stand in his way.
“I think they get that messing around with the Fed is a bad idea,” Strain said of GOP lawmakers. He drew a contrast between the Cabinet, where Republicans tend to give a lot of deference, and the central bank, where “their advice-and-consent role is just stronger.”
Trump-era history backs that up: During the waning days of his first term, Republicans blocked Judith Shelton’s nomination to join the board; in 2019 they pushed back against Trump’s attempts to install Herman Cain and Stephen Moore on the Fed.
Markets will also drive Republicans’ decisionmaking. Investors’ reaction to the attempted firing is muted so far, but that can change quickly.
“I don’t think they’re internalizing the risk,” Mahedy said of investors. “But then the problem there is that whenever they wake up to internalize it, the reaction will be severe.”
Room for Disagreement
Sens. Bernie Moreno of Ohio and Rick Scott of Florida were among the few Republicans backing Trump’s Cook firing.
Scott said Trump is “doing the right thing to hold people accountable, protect American families, and restore trust in the Fed.”
Notable
Retiring Rep. Don Bacon, R-Neb., told Politico that Cook is “entitled to due process” and he sees Trump’s attack as “his way to gain control of the Fed.”
Trump on Tuesday suggested he may shift Stephen Miran, whom he nominated to fill another Federal Reserve board spot, to Lisa Cook’s position, as it is a longer term.
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