Trump aims to win majority on Fed board with attempt to oust Lisa Cook

by Jonnelle Marte and Maria Eloisa Capurro

President Donald Trump’s campaign to oust Federal Reserve Governor Lisa Cook, if successful, would give him the opportunity to exert more influence over the US central bank by securing a majority on its seven-member board of governors.

Trump has made it clear he wants the Fed to slash borrowing costs, and the central bank — under the leadership of Jerome Powell — has this year been subjected to a steady barrage of attacks from the White House over everything from its monetary policy decisions to cost overruns in a major building renovation project.

The president on Wednesday called for Cook’s resignation after Federal Housing Finance Agency Director Bill Pulte alleged she committed mortgage fraud by lying on loan applications to secure more favorable terms. Cook, whose term extends until 2038, later responded, saying she wouldn’t be bullied into stepping down.

“This is a new attempt of the administration to gain more control over the Fed,” said Claudia Sahm, chief economist at New Century Advisors and a former Fed economist. “They’re pulling as many different levers as they can find to get that control.”

The broadside against Cook underscores the lengths the administration is willing to go to extend its influence over the central bank, which has traditionally been insulated from political pressure when it comes to its interest-rate decisions. The White House has already deployed a similar tactic against political foes like California Senator Adam Schiff and New York Attorney General Letitia James.

It also casts a shadow over the Fed’s annual conference in Jackson Hole, Wyoming, scheduled to begin Thursday evening. Powell will deliver his final keynote address to the gathering of global central bankers on Friday morning, and is unlikely to give Trump what he wants to hear — guarantees of imminent rate cuts.

Fed officials have so far this year brushed off the president’s demands for lower rates, citing inflation risk from his tariffs as a reason to hold their benchmark steady.

If Cook were to depart, it would pave the way for four of the seven slots on the Fed’s Board of Governors to be filled by Trump appointees. The president appointed two of the current governors in his first term, and has nominated Stephen Miran — the chair of his Council of Economic Advisers — to fill a third seat that was recently vacated early by Biden appointee Adriana Kugler.  

The strategy would be in line with the approach Trump has taken with boards of other federal government agencies in seeking to stack them with Republican nominees. 

However, winning a majority of the Fed board doesn’t guarantee the president will get his way on rate moves.

Trump’s appointees would still need to garner support from the central bank’s broader, rate-setting Federal Open Market Committee — and moreover, there is no guarantee that all of those appointees themselves would simply comply with the president’s demands.

There is also the question of who Trump will nominate to replace Powell when his chairmanship expires in May, though whether that opens up a fifth slot on the board for Trump to fill will depend on whether Powell decides to serve out his governorship, which doesn’t expire until 2028.

“Even if there’s another governor nomination in the mix, it’s not clear that the new chair will have a majority of the FOMC to vote for much easier monetary policy,” said William B. English, a former top Fed economist who is now a professor at Yale University.

Interest-rate decisions are made by the FOMC, the group of 12 policymakers in Washington and across the country that vote on rate decisions. That means that even if four Trump appointees backed a certain move, they would need the support of at least three other voting members to form a majority. 

Each of the seven governors holds a permanent vote, as does the president of the New York Fed. The remaining four votes are rotated each year among the presidents of the other 11 regional reserve banks.

A majority on the board could give the White House more influence in other areas of policy, including matters of bank regulation, which are the purview of the board and not the FOMC. The board is also responsible for approving or vetoing the reappointment of reserve bank presidents every five years.

Open Questions

Still, whether Trump’s first-term appointees — Governors Michelle Bowman and Christopher Waller — would be willing to do the White House’s bidding is an open question, said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics, Inc.

Bowman and Waller dissented against the FOMC’s decision in July to hold its benchmark rate steady in favor of a quarter-point cut, arguing signs of deterioration in the labor market called for a policy response.

But Waller — a top candidate to replace Powell as chair — has also spoken recently of the importance of central bank independence, warning that anyone atop the institution must have credibility with investors or else inflation expectations and market interest rates would rise.

“Maybe Trump’s idea is he gets four governors who are completely loyal, but we don’t know that the current governors are going to be,” Tang said.

“The new governors, probably, because that’s how they’re being chosen,” he said. “But the ones who are on the board right now, Bowman and Waller, have put forward an economic rationale for why they see the need to ease.”

Powell, meanwhile, has declined to share his plans for what he’ll do come May, when his term as chair expires. Fed chairs traditionally have departed after serving out their leadership roles, even when their terms as governor dictated they could stay on longer. 

An early departure from Cook, however, could raise pressure on Powell, 72, to stay on in order to provide some resistance against political influence at the central bank.

“This is why we think Powell will grit his teeth and stay on the Fed board until his term ends in January 2028,” Andrew Brenner, head of international fixed income at NatAlliance Securities, said Wednesday in a note.

Copyright Bloomberg News