Trump’s Attempt to Fire the Fed’s Lisa Cook Will Raise Costs and Increase Economic Hardship for Working Americans
By Elyse Schupak
Last month, President Trump posted a letter on Truth Social addressed to Federal Reserve Governor Lisa Cook, accusing her of mortgage fraud and claiming to fire her from her position on the Federal Reserve Board. The attempted firing of Governor Cook ratchets up President Trump’s months-long assault on Federal Reserve independence and is an illegal attempt to bring the Federal Reserve under the president’s control. Despite Trump’s claims, the president has no authority to fire Governor Cook. No president has fired a Fed governor in the 111 years since The Federal Reserve Act became law and instituted removability protections. Though the president can fire a Fed Governor for cause—typically defined as inefficiency, neglect of duty, or malfeasance in office—an unproven accusation of fraud prior to her tenure on the Fed, should not qualify as cause for Governor Cook’s removal.
The attempted firing of Cook is the latest effort by President Trump to limit the Federal Reserve’s independence and consolidate power with his presidency. In February, Trump issued an executive order targeting independent federal agencies, illegally requiring White House oversight of the agencies’ rulemaking authority, impounding appropriated funds for initiatives that conflict with White House priorities, and requiring that the agencies adhere to executive branch interpretations of law. Since taking office, President Trump has waged a public campaign against Chair Powell, floating and then walking back threats to fire the Fed Chair and scrutinizing him on matters ranging from interest rate decisions to Federal Reserve building renovations. To fill the vacancy left by Governor Adriana Kugler’s abrupt resignation in August, Trump and Senate allies fast-tracked the confirmation of Stephen Miran, a Trump loyalist who plans to take only a leave of absence, rather than resign, from his current role as Chair of the White House Council of Economic Advisors.
Should Trump succeed in firing Governor Cook, he will end Federal Reserve independence as we know it. Removability protection is what allows Federal Reserve governors to make monetary policy and regulatory decisions free from political pressure. Without this protection, Board Members will face the threat of losing their jobs if they make interest rate policy decisions out of step with the president’s preferences and will face pressure to consider the short-term policy goals of the Trump administration over long-run economic outcomes and financial stability.
Rejecting President Trump’s effort is not an endorsement of current Fed policy or existing levers of accountability. Reforms are needed to curtail Wall Street’s influence on the Fed, ensure the Fed is fully committed to achieving maximum employment, and addresses all risks to financial stability—including from climate change and other emerging threats. Bringing the Fed under President Trump’s thumb only makes these goals further out of reach.
Loss of Federal Reserve independence will raise prices for working families
In the absence of an independent Fed, President Trump will have free rein to lower interest rates, increase credit availability, and boost short-term economic growth above long-run potential. While high growth and cheap credit can benefit a sitting president in the short-run—including electorally—running an economy above its potential will eventually drive up inflation. Four decades of economic research shows that independent central banks are more effective at promoting price stability than their political counterparts due to these incentives. If businesses, consumers, and investors believe the Fed is an arm of the Trump Administration, they will expect higher prices in the future and adjust current behavior accordingly. This can set in motion a self-fulfilling prophecy.
In this scenario, working families will pay a price. Excessively high inflation hurts all households, but falls disproportionately on low-income households who spend the majority of their income on essentials, such as food, rent, and utility bills—expenses which cannot be easily reduced to accommodate higher prices—and who already have smaller financial cushions, if any at all. The Fed’s principal method of returning inflation to target when inflation expectations have become unanchored is to engage in significant interest rate increases that can create further financial hardship for working families. Increased borrowing costs make it more expensive to purchase a home, buy a car or finance other significant purchases like home appliances. Increasing interest rates and tightening credit conditions in an attempt to cool an overheating economy also increases borrowing costs and reduces profitability for businesses. Working families will again pay the price as reduced firm profitability necessitates layoffs and drives up unemployment.
Loss of Federal Reserve independence threatens financial stability
Loss of independence will also impede the Fed’s already waning ability to make regulatory and supervisory decisions free from political influence. Board Members must be committed to managing all risks that banks and other financial institutions face and create for both themselves and the broader economy rather than turn a blind eye to risks that conflict with political priorities, whims, and personal interests. We cannot expect a Fed controlled by the Trump administration to take seriously risks from climate change or digital assets—even if addressing these risks is appropriate to promote bank safety and soundness or broader financial stability. Research shows that it is not just effective monetary policy that will be compromised by a political takeover of the Fed. When the independence of financial regulators is compromised, efforts to maintain the safety and soundness of individual financial institutions and financial stability more broadly can be undermined.
The Federal Reserve is already far too influenced by deregulatory interests. The influence of Wall Street, including the revolving door between Wall Street and the Fed, has limited bank regulation and the Fed’s attention to systemic risk. Banks waged a successful lobbying campaign against the Basel III Endgame proposal to increase bank capital requirements, and in 2022, the fossil fuel industry succeeded in blocking the confirmation of Sarah Bloom Raskin for the Fed’s vice-chair for supervision due to her view that the Federal Reserve should treat climate-related financial risk like other risks rather than ignore it. Since the start of the second Trump administration, the Federal Reserve has abandoned its efforts to measure and mitigate climate-related financial risk and acquiesced to President Trump on other administration goals, including eliminating DEI policies and cutting staff, in an attempt to avoid Trump’s ire. Excessive influence by industry and the Trump administration has led to the rolling back of key financial protections, including community reinvestment standards, and reduced oversight on important risk areas such as climate change and cryptocurrency.
Effectively regulating banks is about far more than protecting the supervised institutions, as instability in the financial system can quickly spill over into the real economy. While the 2008 global financial crisis started with excessive Wall Street risk-taking and speculation, the consequences of these activities were felt most acutely by low- and moderate-income Americans. The 2008 financial crisis led to staggering rates of foreclosure—homeownership among Black Americans has yet to return to pre-crisis levels—as well as job losses, prolonged high unemployment, and years of stagnating economic growth.
Bringing the Fed under White House control does not address the Federal Reserve’s existing shortcomings. Instead, it adds to the challenges of meeting the Fed’s monetary policy and regulatory missions and increases economic hardship and financial precarity for working Americans.