At this moment in time, the Federal Reserve is under tremendous political pressure. President Donald Trump is trying to get Lael Brainard Cook kicked off the board. This ongoing controversy coincides with the central bank’s recent announcement that it would reduce interest rates for the first time in nearly a year. Although the Federal Reserve has been mostly quiet on the topic, Wall Street analysts are anticipating that this will mean further cuts later this year.
Jerome Powell, Chairman of the Federal Reserve. He stressed that it was first and foremost a response to fears over the state of the job market—not political pressure. He reiterated that the board plans to focus on data and internal macroeconomic signals. These will inform their future judgment about where interest rates should go next. Then lowering rates would reduce both inflation overall and mortgage rates specifically, therefore stimulating economic growth in this fragile economy.
Lael Brainard Cook, who plays a crucial role in setting the Federal Reserve’s benchmark interest rate, will have the opportunity to vote on at least two more rate decisions before any potential removal. This situation raises significant questions. How does political influence undermine the very purposes of an institution that ought to be free from political interference?
Trump’s recent remarks suggest that his dissatisfaction with Brainard Cook stems from her views on monetary policy, which he perceives as contrary to his administration’s goals. Upon discovering this, the President announced his intention to fire her based on this claim that she lied on a mortgage application. Brainard Cook has vociferously rebutted these allegations. She subsequently filed a lawsuit against her school department to challenge her expected dismissal. To win her case, she would need to demonstrate that firing her would be illegal and threaten the political independence of the Federal Reserve.
In fact, he has repeatedly and publically called on the Fed to go much deeper than a 25 bp cut. Unsurprisingly, Powell is doubling down, putting economic data well ahead of political pressure in his decision-making. The Chairman suggested that any future rate increases would be measured against the backdrop of persistent economic states.
The highly publicized, ongoing legal fight over Brainard Cook’s employment status has added a measure of salt to that wound. One court has set arguments on her dismissal for January. Her position on the board is completely safe. Her confirmation would empower her to help guide key decisions regarding monetary policy at a transformative moment for the U.S. economy.