The Federal Reserve Board meets in the Marriner S. Eccles building, Washington, D.C. The board currently only has seven members. If former President Donald Trump can ride out the continuing storm over Federal Reserve Governor Lisa Cook, he will have more to add to his influence. Cook was the first Black female to serve as a Fed governor. Now, she is threatened with firing and she’s fighting it in court, with an expected lawsuit on the way.
As 2023 draws to a close, analysts are forecasting a big turnaround. They predict there’s a 1 in 4 chance that Cook will be out of her job before the year is over. If that occurs and survives legal challenge, Trump would appoint a majority on the Federal Reserve Board. This would be a huge rebalancing of power. He’s wasting no time inside his own party. He has already appointed Christopher Waller and Michelle Bowman to the board. This decision deepens his imprint on the agency’s trajectory.
Changes on the Horizon
Trump’s influence extends beyond Cook’s potential departure. And, on the same day, he nominated Stephen Miran to fill another vacancy on the Fed Board. Like all such appointments, this one must still be confirmed by the Washington-D.C. based Fed Board of Governors. Trump’s growing influence has huge implications. We say this at a time when all 12 regional Fed presidents’ terms are scheduled to expire at the end of this month.
The Fed Board typically confirms these regional presidents in late January. That usual routine process might be a bigger deal now. According to Narayana Kocherlakota, “Typically, this is a very routine process. It would be good to have a more open and deliberate process.” Trump’s likely impact on these appointments is particularly alarming. It’s an indication they’re going to go very hard in his direction on monetary issues.
Assuming Cook is booted and Trump’s replacements take their seats, the FOMC will be undergoing a very dramatic change indeed. This committee—consisting of twelve regional district bank presidents and seven governors—could undergo what some analysts refer to as a “radical reconstruction.”
“The Federal Open Market Committee would undergo a radical reconstruction, not unlike the Fed’s Washington building complex.” – Jim Bianco
Implications for Monetary Policy
Trump getting a majority on the Fed Board would be dangerous. How might this more hawkish turn affect the conduct of monetary policy going forward, and its possible re-aligning with White House priorities? In fact, experts think that Trump may have the opportunity to get the board under his iron-fisted control. If implemented, this change would produce a more collaborative FOMC, resulting in reduced interest rates and increased federal control.
Jaret Seiberg noted that “The President could push his majority to reject reserve bank presidents unless they agree to back lower rates and are comfortable with more White House influence over monetary policy.” If carried through, this very welcome change would have long-term impacts on economic policy direction in the future.
Tim Mahedy from Moody’s has warned about the broader repercussions of these moves on long-term economic prosperity. He indicated that lawmakers should recognize the seriousness of the situation, stating, “To those in Congress who may be wondering if this is the line in the sand, it is. Over 100 years of economic prosperity is at risk.”
Legal Challenges and Future Considerations
Though Cook is readying her legal challenge to her firing, her future is still very much up in the air. Little did she know this legal battle would forever alter the course of her career. It would further require the Federal Reserve Board to diversify its membership. Experts say that even if Cook’s departure does come to pass, there is still a muddy road ahead for Trump when it comes to making new appointments.
“We see a path for Trump even if it is unclear yet if he will go down it,” Jaret Seiberg commented, highlighting the unpredictability of the current political climate surrounding the Fed.
The situation is evolving rapidly. Analysts warn that if Trump succeeds in reshaping the board significantly, it could lead to a departure from traditional Fed operations and principles. Narayana Kocherlakota expressed concern about this potential shift: “That would be crossing a line. It would be quite troubling.”