Update 890 – Fed Independence Cooked?
Landmark Suit vs. Trump Firing Launched
President Trump attempted to fire Federal Reserve Governor Lisa Cook on Monday after his administration accused her of fraud – a crime she has not been charged with or convicted of. Cook has refused to step down and challenged her attempted “for cause” removal in federal court. The effort to fire her comes as President Trump escalates his attacks on Federal Reserve independence for the sake of lower interest rates.
The attempted dismissal of Fed Governor Cook comes as new data released this week shows that a measure of core inflation ticked up last month and economic growth remained strong during the second quarter of this year. The data could push the Fed’s interest rate-setting committee to lower rates at its next meeting in September, a move Fed Chair Powell has left the door open for. We examine Trump’s attack on Fed Governor Cook, this week’s data drops, and the September interest rate decision below.
Good Labor Day weekends, all…
Best,
Dana
President Trump’s attempt to fire Federal Reserve Governor Lisa Cook is a dangerous, unprecedented attack on the Fed’s independence. No President has ever removed a Federal Reserve governor. Cook has filed a lawsuit in response, seeking a temporary restraining order to block her firing while the case is being heard.
This move is the latest in the Trump administration’s effort to eliminate longstanding pockets of independence within the federal government and intimidate any official who prioritizes their duty to the American people over the President’s political will — nothing short of an authoritarian step to concentrate power in the executive and stifle dissent.
This latest attack also undermines global confidence in the Fed and the American economy. During future periods of stress, the world will look to the Fed to help provide stability and see a weakened institution under the thumb of the President, who may act in his short-term political interest instead of that of broader economic stability. Furthermore, with inflation rising, the labor market weakening, and growth moderating under the weight of the administration’s economic policies, an independent apolitical Fed is more important than ever.
Trump’s Attempted Firing of Fed Governor Lisa Cook
President Trump has pushed Federal Reserve officials to cut interest rates aggressively. His tariff and immigration policies have slowed the American economy, and lower interest rates could stimulate the economy beyond the enormous fiscal stimulus in the Republicans’ One Big Beautiful Bill (OBBB). Fed officials have largely resisted Trump’s attempts to influence their monetary policy decisions and have instead voted to hold interest rates steady all this year. Among other arguments, they have cited the fiscal stimulus provided by the OBBB as a reason not to further stimulate the economy. Trump is seeking to secure a majority on the Fed’s Board of Governors to gain influence over these traditionally politically insulated monetary policy decisions.
On Monday, President Trump said that he was removing Lisa Cook from the Fed’s Board of Governors effective immediately, following allegations of mortgage fraud leveled by his political ally, Federal Housing Finance Agency Director Bill Pulte. Pulte filed a criminal referral against Cook with the Department of Justice.
Cook took office as a member of the Fed’s Board in May 2022 to fill an unexpired term ending January 2024. She was later reappointed to the board to serve a full fourteen-year term, ending in January 2038.
Cook has yet to be charged with or convicted of a crime and has refused to step down. Yesterday, Governor Cook filed a lawsuit against President Trump in federal court in Washington, D.C., seeking a temporary restraining order to block her removal from the board. The suit names Fed Chair Jerome Powell and the board itself as defendants and the case is likely to move to the Supreme Court.
Hours after Cook’s suit was filed, Pulte said he filed a second criminal referral against Cook with the Justice Department, alleging that she committed similar fraud while serving on the Fed’s board.
After a court hearing earlier today, the judge did not immediately issue a ruling, allowing Cook to remain on the board. The judge asked Cook’s lawyer to file a brief on Tuesday further outlining their argument that Cook’s attempted firing was illegal.
Trump Seeks to Stack Fed, Secure Interest Rate Cuts
Trump’s attempt to fire Cook is the latest in a series of escalating attempts to shape the seven-person Fed Board of Governors. Trump cannot legally fire any member of the board for refusing to lower interest rates. The President can only legally remove a member of the Fed’s board “for cause,” according to Section 10 of the Federal Reserve Act.
Two Trump-appointed members of the board – Governor Christopher Waller and Vice Chair of Supervision Michelle Bowman – supported a 25 basis-point cut to interest rates in July, while every other member of the Fed’s rate-setting committee supported holding rates steady. This was the first decision in which two FOMC officials dissented since September 2020.
Trump has threatened to fire Fed Chair Powell before his term as chair ends next May and apparently sought to manufacture grounds for a “for cause” firing related to the Fed’s ongoing building renovations ahead of the Fed’s last interest rate decision in July. When Powell’s term as chair ends, Trump will have the opportunity to nominate a replacement from the board’s members to chair the board for a four-year term.
Earlier this month, Fed Governor Adriana Kugler, a Biden appointee, resigned from serving an unexpired term ending next January. Trump has sought to fast-track the confirmation of his nominee to replace her before the Fed’s next interest rate decision in mid-September. Trump will have the opportunity to nominate a governor for a full fourteen-year term when Kugler’s replacement steps down in January.
Replacing Kugler will give Trump three members on the board who support interest rate cuts; replacing Cook would give him a fourth, a majority of the board. It is notable that interest rates are decided by the twelve-member Federal Open Market Committee (FOMC), which includes the seven board members and five presidents of regional Reserve banks.
Fed Chair Powell has opened the door to a rate cut at the FOMC’s next meeting in September, but with inflation rising, as described below, and the labor market weakening, the Fed’s dual mandate is in tension. A cut in September hinges on inflation and labor market data released in the interim. A significant uptick in inflation could push FOMC officials to hold rates steady once again, while further weakening of the labor market would incline FOMC officials towards rate cuts.
Core Inflation Rises to 2.9% in July
The Trump administration’s escalated attempts to influence monetary policy come as its tariffs continue to push inflation higher.
Prices rose 2.6 percent over the twelve months ending in July as measured by the Federal Reserve’s preferred measure of inflation, the personal consumption expenditures (PCE) price index, according to the July PCE report released by the Bureau of Economic Analysis this morning, consistent with the rise in prices over the twelve months ending in June.
Core PCE prices – which strip out food and energy prices – rose 2.9 percent over the twelve months ending in July, up from a 2.8 percent rise in core prices over the twelve months ending in June. This is the highest annualized increase in PCE prices since December.
On a monthly basis, headline PCE rose by 0.2 percent last month. This is fairly consistent with the rise in prices on a monthly basis in each of the two months prior. Over the month, food prices fell 0.1 percent, and energy prices fell by 1.1 percent. Core PCE prices rose by 0.3 percent on a monthly basis in July, consistent with the rise in core prices on a monthly basis in June.
The new data shows that inflation is rising at least in part due to the Trump administration’s sweeping tariffs, which are still settling into the economy, but likely not enough to drive FOMC officials towards another interest rate pause at its next meeting in September. The likelihood of a rate cut in September is high, particularly if next week’s August jobs report shows further moderating job gains.
U.S. Economy Grows 1.4% in First Half of 2025
The United States economy grew by 3.3 percent on an annualized basis in the second quarter of this year after contracting by 0.5 percent during the first quarter. The Trump administration’s tariff policies have led to significant fluctuations in quarterly growth. Therefore, smoothing out growth over the first half of the year allows us to better see the underlying trend. The U.S. economy grew by 1.4 percent over the first half of this year, a slowdown compared to the 2.5 percent growth rate seen during the first half of last year.
Growth during the second quarter was revised up by 0.3 percentage points from a previously estimated 3.0 percent growth over the period. This was according to the second estimate of second quarter GDP released by the Bureau of Economic Analysis (BEA) yesterday morning.
The increase in real GDP in the second quarter primarily reflected upward revisions to investment and consumer spending, which were partly offset by a downward revision to government spending and an upward revision to imports, a subtraction in the calculation of GDP. The second estimate is based on more complete data.
The new GDP data suggests that growth remains strong, although it has slowed compared to the same period last year.
Congress Must Oppose Trump’s Attempt to Seize Fed
President Trump’s assault on key pockets of independence across the federal government erodes longstanding and hard-fought institutional strength, which were designed to protect Americans. Trump’s attempted firing of Cook comes after he removed Dr. Erika McEntarfer, the head of the Bureau of Labor Statistics, following a weak jobs report, and supported the removal of Centers for Disease Control and Prevention Director Susan Monarez, who refused to back potential recommendations to restrict vaccines.
It is up to Congress to exercise its power to rein in President Trump’s attempt to centralize power and, in the process, dismantle systems Americans rely on. We encourage all members of Congress to condemn these attempted removals in the strongest terms and to oppose Trump’s nominees to fill the vacancies he has created in coming confirmation votes as those nominations move forward.