For months, President Donald Trump’s attempts to persuade the Federal Reserve to cut its key interest rate have been ineffective, with the central bank repeatedly voting to hold the federal funds rate steady despite an intensifying public pressure campaign from the White House.
Now, the president appears to have shifted his tactics, and observers are closely watching his latest play for control over the Fed. If it proves successful, experts warn it could pose long-term risks to the U.S. economy.
The question at issue: If central bank policymakers aren’t voting the way you want them to, can you simply replace them with those who will?
The answer is a mix of “yes,” “no” and “we’re about to find out.”
Trump announced last month that he was ousting Fed Governor Lisa Cook over accusations of mortgage fraud. Cook is challenging his effort to remove her from the Fed board, and the courts will ultimately decide whether the president has the legal authority to fire her.
If Trump is successful in replacing Cook with his own pick, he will have selected four of the seven members of the Federal Reserve Board, giving him a majority and a greater opportunity to influence interest rate decisions made by the board, which is supposed to be independent and nonpartisan. (Two appointees from Trump’s first term sit on the board, and a third, Stephen Miran, could be confirmed in the coming days.)
Yes, the President Can Select Fed Governors
Fed governors serve staggered 14-year terms, and presidents can select replacements to fill seats when those terms expire or if a board member chooses to vacate their seat early. Because of the length of their terms, opportunities to appoint new governors are relatively infrequent. But when seats open up, a president can choose whom they want to fill them, as long as those picks can be confirmed by the Senate.
“Can the president influence the board by his picks? Sure, of course,” says Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business and a former chief economist at the Securities and Exchange Commission. “Just like a president can influence the courts by his judicial selections.”
No, the President Can’t Replace a Fed Governor Over Policy
While Trump can nominate a candidate to fill an open seat on the board, he can’t dislodge a Fed governor from their position just because their decisions don’t align with his wishes.
This has been the case since the Federal Reserve was created more than a century ago, says William Christiansen, a finance professor at Florida State University’s College of Business. He says the Fed was set up to be independent from the president to prevent political motives from influencing monetary policy. Otherwise, a president might prioritize policies that deliver short-term gains during his term.
“That often is at odds with exactly what’s best in the long-run interest of the United States,” says Christiansen.
For example, a president might cut interest rates, resulting in a boost to the economy and his approval rating. However, if market conditions didn’t necessitate those cuts, the economy could experience high inflation in the future.
Fired ‘For Cause’? Why the Lisa Cook Case Looms Large
So what can a Fed governor be fired for? That’s the question being debated.
For much of the year, the president has continuously ratcheted up the pressure on Fed Chair Jerome Powell, demanding that Fed policymakers cut interest rates to help stimulate economic growth and lower borrowing costs.
Late last month, however, his focus turned to Cook, who was appointed by former President Joe Biden in 2022 and has more than a decade remaining in her term. That’s when Trump’s housing finance director alleged that Cook committed mortgage fraud in 2021 by claiming multiple houses as her primary residence. Trump responded by announcing he was firing Cook.
The Federal Reserve Act of 1913, which created the Fed, says governors can be removed “for cause” but doesn’t specifically define what that means. Cook and her lawyers argue that the mortgage allegations don’t meet that standard, also noting that they occurred before she began her term on the board.
Cook scored an initial victory on Sept. 9, when a federal judge blocked Trump from removing her from the board, allowing her to hold onto her seat while the legal case moves forward. The case will likely reach the Supreme Court.
If the court rules that Trump can legally remove Cook, experts say that could set a new, potentially dangerous precedent where administrations may be incentivized to target individual board members with investigations in an attempt to justify their removal.
“If it’s perceived that the president can almost make up the cause, as the critics would say, then the president has a lot of power over the board members in terms of subtly trying to influence them,” says Spatt.
Some experts suggest that simply the threat of being targeted could be used by the White House to sway policymakers into voting in support of the president’s wishes.
“That’s the intent. Will it influence other governors? I don’t know. I hope not,” says Kathleen Day, a senior lecturer of finance at Johns Hopkins University’s Carey Business School and the author of “Broken Bargain: Bankers, Bailouts and the Struggle to Tame Wall Street.”
Potential Long-Term Impacts
Trump’s recent efforts to ratchet up the pressure over interest rates have alarmed some Fed watchers and influential business figures.
“The president’s strategy of publicly criticizing the Fed, suggesting the dismissal of governors, and pressuring the central bank to adopt a more permissive stance toward inflation carries steep costs,” said hedge fund billionaire Kenneth C. Griffin in a recent Wall Street Journal op-ed he co-authored with University of Chicago Booth Business School professor Anil K. Kashyap.
The authors argue that Trump’s actions could undermine the Fed’s independence and possibly result in higher inflation and elevated long-term interest rates. This could affect consumers in various ways. For example, buying a home could become even more expensive, and retirement nest eggs might not last as long.
Day says Trump’s targeting of the Fed, along with other actions such as his recent ousting of Bureau of Labor Statistics Commissioner Erika McEntarfer after the release of unfavorable jobs data, risks eroding consumer and investor confidence.
“The big picture is he’s compromising the independence, and thus, the accuracy of information that markets depend on,” says Day. “It’s going to take years to repair that.”
Fed observers say they’re monitoring several developments in the coming months, in addition to the Cook case.
The Fed is expected to cut rates at its Sept. 16-17 meeting, a prospect that is even more likely after a stretch of job data that suggests a weakening in the labor market. But experts note that inflation remains above the Fed’s 2% target, and they say tariff pressures and other factors may cause it to rise.
Powell’s term as Fed chair expires in May 2026, leaving many to wonder whom Trump will promote to the leading role. His selection may give a strong indication of how much control he aims to exert over the central bank through the remainder of his presidency.
“Is it a solid economist or is it just someone who will do your bidding for you there? I think a lot of people fear it’s the latter,” says Christiansen.
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Fact Check: Trump Wants to Lower Interest Rates by Stacking the Fed with Loyalists — Can He Do That? originally appeared on usnews.com
