The war of words and musical chairs between former President Donald Trump and Federal Reserve board member Lindsay Cook just got a lot worse. After a court denied Trump’s request to remove Cook from her post, this ruling allows Cook to remain on the board. He will be a key player in forthcoming interest rate decisions, which could sharply alter the course of the nation’s monetary policy.
Trump telegraphed his intentions to fire Cook from the very beginning. He charged her with lying on a federal mortgage application filed before her gubernatorial appointment. Cook maintains that the real reason behind Trump’s actions is her advocacy for lower interest rates, which she argues could alleviate inflation and reduce mortgage rates. From his presidency, she sharply contrasts with Trump on climate. Trump attacked the Fed for not cutting interest rates more aggressively immediately upon the start of his second term.
Cook has suggested that the Federal Reserve should consider replacing its Chairman, Jerome Powell, with someone more aligned with her perspective on monetary policy. This proposal highlights the tension between Cook’s vision for the economy and Trump’s dissatisfaction with the current administration of monetary policy.
The court ruled to allow Cook to remain in office. That means she’s going to be voting at least two more times on whether the Federal Reserve should continue down the path of more rate cuts. This is especially notable following the Fed’s decision on September 17 to maintain interest rates. On July 25, it finally followed through with its first rate cut in almost a year. In an interview following the decision, Powell explained that the decision was largely motivated by concerns over the labor market. It did so, remarkably, free from any external political pressure.
Although Cook is the target of Trump’s mortgage fraud claims, she has never been charged with a crime. And the battle over her controversial confirmation still isn’t over. In early January, the merits of her firing will be argued before the court.
Trump’s previous threat to oust Powell drew a firestorm of opposition. The markets unsurprisingly reacted violently, and many lawyers were toilet-side raising concerns about the legality of his proposed action. In the end, he retreated, knowing the blowback would’ve been fierce from an action seen as politically retaliatory.
The Federal Reserve is about to sail into tempestuous seas. It will rely on economic data and internal evaluations of the program to determine when to make rate reductions in the future. This spat between Trump and Cook, though, shows how complicated monetary policy can be. It further offers a glimpse into how changing political dynamics can remake the contours of economic governance.