Donald Trump thinks he can control all aspects of American life, including free market interest rates. The chair of the Federal Reserve, the global economy and now, one of the Fed’s governors, disagree.
In his latest attempt to pressure the central bank to lower interest rates to lessen political fallout from his ill-conceived tariffs, Trump is attempting to fire Fed Governor Lisa Cook, the first Black woman to serve on the board of governors. Her appointment, under Section 10 of the Federal Reserve Act of 1913, can only be terminated by a president for cause.
“Cause,” though, does not mean whatever Trump wants it to mean; rather, cause is statutorily defined as “inefficiency, neglect of duty, or malfeasance in office.”
On Aug. 25, he announced his intention to remove Cook from office on the basis of allegations falling outside that statutory definition: Unsubstantiated accusations from a Trump ally that Cook made false statements on a mortgage application in 2021, before she joined the Federal Reserve. (Cook has not been charged with or convicted of a crime.) If Trump succeeds, he will have appointed the majority of the seven-member Board of Governors, giving him direct influence over their decisions.
As the central bank of the United States, the Fed sets the nation’s monetary policy. Its dual statutory goals are to maximize nationwide employment and protect the value of the U.S. dollar. The agency is part of the federal government, but, by statute, it operates independently.
If the Fed were to fall under the influence of Trump or any other elected official seeking to tie interest rates to their political agenda, economic consequences would be dire: Investors would face heightened market volatility due to uncertainty and artificially manipulated interest rates, causing confidence in U.S. assets to drop.
If the Fed were to fall under the influence of Trump or any other elected official seeking to tie interest rates to their political agenda, economic consequences would be dire: Investors would face heightened market volatility due to uncertainty and artificially manipulated interest rates, causing confidence in U.S. assets to drop.
The president’s action came after he made repeated threats to remove Fed officials, including Chair Jerome Powell, because he is unhappy the agency hasn’t lowered interest rates to mask market reaction to his tariffs, which have caused unprecedented levels of volatility and uncertainty. Because the economy is evolving with a potentially weakening job market, the Fed is taking a “wait-and-see” approach in lowering interest rates until it is sure its dual mandate of maximum employment and low, stable inflation can be achieved.
In a letter addressed to Cook, Trump wrote, “In light of your deceitful and potentially criminal conduct in a financial matter… I do not have confidence in your integrity.” The president, who was himself convicted of 34 felonies for falsifying business records, whose organization was found guilty on 17 counts of criminal tax fraud and whose “Trump University” defrauded students to the tune of $25 million, appears blind to any irony in his accusations.
Cook is fighting back. In a civil suit filed on Aug. 28, she stated that the attempted firing violates her due process rights as well as the Federal Reserve Act. Seeking an emergency injunction to block her firing and confirm her status as a member of the Fed’s governing board, Cook’s attorneys argued that “[t]he President’s effort to terminate a Senate-confirmed Federal Reserve Board member is a broadside attack on the century-old independence of the Federal Reserve System.”
The suit seems destined for the Supreme Court. Despite having granted nearly all of the Trump administration’s 19 emergency appeals on its shadow docket, it appears a majority of the court may well agree with Cook.
In May, the court reiterated the Fed’s independence in Wilcox v. Trump, ruling that “the Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.” The justices distinguished the operational independence of the Fed from that of the National Labor Relations Board, the Merit Systems Protection Board and other quasi-independent agencies such as the Federal Trade Commission and the Federal Communications Commission. In Wilcox, although the Republican-appointed majority bucked longstanding precedent protecting the independent expertise of executive agencies, they carved out an exception for the Fed.
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Justice Elena Kagan, in a dissenting opinion, pointed out that Congress intended to vest a certain amount of independence among all executive agencies, removing them from a president’s whim because “in certain spheres of government, a group of knowledgeable people from both parties, none of whom a President could remove without cause, would make decisions likely to advance the long term public good.”
By removing “for cause” protections that had been in effect for agency directors since 1935, Kagan reasoned, the court greatly expanded Trump’s executive power, allowing him to remove any director working for the executive branch, with or without cause. Nonetheless, the majority bent over backward to exclude the Fed from its ruling, previewing the court’s concern with maintaining fiscal autonomy.
In her suit, Cook conceded that the “for cause” standard is not defined in the statute that created the Fed, but she explains how statutes establishing the standard in other independent agencies expressly limit “for cause” terminations: There must be a specific finding of “inefficiency, neglect of duty, or malfeasance in office.”
While the Supreme Court has not defined those terms, their historical use indicates that “neglect of duty” means failing to perform one’s duties in a way that caused specific harm to the entity involved; “malfeasance” connotes the commission of an unlawful act in the performance of one’s official duties and “inefficiency” targets concerns about “waste,” especially from self-interested dealing, which is designed to ensure that officers do their jobs competently and honestly.
If Trump is allowed to go on a fishing expedition to discover infractions in personal life that he can then use to terminate employees whose terms are statutorily protected, regardless of whether those infractions have any bearing on their performance, then there is no such thing as “for cause” termination restrictions. This would suit Trump — who claims some Americans yearn for a dictator — just fine. But it would not serve the American people or the economy.
Short-term political interests of a president often diverge from sound long-term fiscal policy. Trump favors lower interest rates today to support the appearance of an economic lift. However, such an approach could fuel long-term inflation. Moreover, as Cook pointed out, only an independent Fed can prevent administrations from “using monetary policy for self-serving political ends in other ways,” like simply printing more money to finance debt.
Trump’s threats have already jeopardized the Fed’s goals, destabilizing global markets and eroding trust in U.S. markets and fiscal autonomy. AInvest reported early market responses to his threats, including fixed income markets shifting toward inflation hedges (like gold in 2025) as Treasury yields surged to 4.8%, reflecting heightened risks from politicized central banking; higher borrowing costs and sectoral rebalancing in the markets; and prioritizing short-duration bonds, emerging markets and alternative assets to offset currency volatility. In sum, AInvest stressed that “the Fed’s independence remains critical to global stability, as political interference risks undermining dollar dominance and triggering cascading effects on bond yields and equity valuations.”
If left unchecked, like his tariffs, Trump’s short-sighted and self-serving economic impulses could lead to total economic collapse. Even for a Trump-stacked MAGA court, that may be a bridge too far.
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