The independence of the Fed is considered critical to its ability to fight inflation because it enables it to take unpopular steps like raising interest rates. If bond investors start to lose faith that the Fed will be able to control inflation, they will demand higher rates to own bonds, pushing up borrowing costs for mortgages, car loans and business loans.
Legal scholars noted that the allegations are likely a pretext for the president to open up another seat on the seven-member board so he can appoint a loyalist to push for his long-stated goal of lower interest rates.
US President Donald Trump in the Oval Office on Monday.Credit: Bloomberg
Fed governors vote on the central bank’s interest rate decisions and on issues of financial regulation. While they are appointed by the president and confirmed by the Senate, they are not like cabinet secretaries, who serve at the pleasure of the president. They serve 14-year terms that are staggered in an effort to insulate the Fed from political influence.
No president has sought to fire a Fed governor before. In recent decades, presidents of both parties have largely respected Fed independence, though Richard Nixon and Lyndon Johnson put heavy pressure on the Fed during their presidencies – mostly behind closed doors. Still, that behind-the-scenes pressure to keep interest rates low, the same goal sought by Trump, has widely been blamed for touching off rampant inflation in the late 1960s and ’70s.
Trump argued that firing Cook was constitutional, even if doing so will raise questions about control of the Fed as an independent entity.
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“The executive power of the United States is vested to me as President and, as President, I have a solemn duty that the laws of the United States are faithfully enacted,” the president wrote in the letter.
“I have determined that faithfully enacting the law requires your immediate removal from office.”
Cook could be allowed to remain in her seat while the case plays out. Cook would have to fight the legal battle herself, as the injured party, rather than the Fed.
It is the latest effort by the administration to take control over one of the few remaining independent agencies in Washington.
Trump has repeatedly attacked the Fed’s chair, Jerome Powell, for not cutting its short-term interest rate, and even threatened to fire him.
Forcing Cook off the Fed’s governing board would provide Trump an opportunity to appoint a loyalist. Trump has said he would only appoint officials who would support cutting rates.
Powell signalled last week that the Fed may cut rates soon even as inflation risks remain moderate.
Meanwhile, Trump will be able to replace Powell in May 2026, when Powell’s term expires. However, 12 members of the Fed’s interest-rate setting committee have a vote on whether to raise or lower interest rates, so even replacing the chair might not guarantee that Fed policy will shift the way Trump wants.
