US President Donald Trump will speak at a meeting with Ukrainian President Voldy Mie Zelensky and European leaders in the Eastern Room of the White House in Washington, DC on August 18, 2025.
Andrew Caballero-Reynolds | AFP | Getty Images
President Donald Trump’s efforts to loot Federal Reserve Governor Lisa Cook is more than firing someone. If successful, it is manipulation that marks earthquake changes in an institution that were considered beyond politics due to age.
Since taking office in January, Trump has placed the Fed directly at the intersection of executive power. He denounced central bankers for not lowering the rates, threatened to remove Chairman Jerome Powell, and now took an unprecedented step towards actually winning dishes.
From the president’s point of view, he is trying to reform what was an unpopular institution, often denounces the runaway inflation that has hit the United States following the symbiotic pandemic. Trump sees lower interest rates as a pathway to managing federal debt, boosting the housing market, which had been a counterweight to economic growth.
But legal scholars and financial market experts, current and former Fed officials say Trump’s moves will not only make the Fed more political, but also undermine key pillars of the US financial system.
“We are on a path that leads to the erosion of central bank independence,” said Judge Kathryn, a professor at Columbia Law School. “The long-term health of the economy will be very expensive as the Fed loses the credibility they have been trying to build for decades.”
Independence in the Fed’s case is a term used to describe freedom from external political influences to determine the optimal monetary policy for the US economy. This is especially true when these decisions are unpopular, such as when the Federal Open Market Committee raises interest rates to reduce inflation.
But it’s at risk as well as the three rate levels controlled by the Fed.
What the board controls and does not
If Trump has forced the majority of members of the Governor’s Committee to vote for the way he wants, and the evidence now is certainly scarce that he can achieve such a goal – it would give him access to the key lever that controls the economy and the country’s financial infrastructure.
For example, a seven-member board has regulatory and enforcement rights to the bank.
Additionally, the 12-person FOMC sets interest rates for major overnight funds, but also helps as a type of fund rate guardrail, as a discount rate used by the governor alone to find the value of the money, as well as interest on the reserve balances that pays the bank to save money to the Fed.
Finally, the board will manage the reappointment of 12 regional bank presidents, with many names appearing in 2026.
Embedded into these responsibilities is the Fed’s role in ensuring the integrity of the financial system and maintaining a stable dollar.
In other words, this doesn’t just cut fees in September.
“I think the most serious danger that people can have confidence in the Fed committee is what Trump himself is doing,” said Robert Hockett, a professor at Cornell Law School. “Because if Trump succeeds in this, the Fed Committee suggests it’s nothing more than a rubber stamp. Essentially, it tells us that Nuts Bove, who happened to enter the White House, is setting monetary policy.”
The effect is that “in the future that the banana republic of Latin America classically had when the dictators set monetary policy, we can have the same kind of hyperinflation, or in the recent years that Turkey has experienced since the dictators set monetary policy.”
What Trump wants to achieve
On the administration side, Trump’s EUs have largely said they believe in independent independence, but the central bank believes it is run by an institution that needs to be controlled.
However, the president has allowed him to test candidates for Litmus for board vacancy on his willingness to lower the rate, and he has insisted in the past that he has gained a say in the Fed’s fee decisions amid other measures that could be considered a break-in into central bank space.
“I don’t think it’s a weakening of the Fed’s independence. The system requires a wholesale reevaluation, and I think President Trump is just doing something unconventional.” “Instead of the Fed’s issues of climate change, diversity and inclusion, and certainly something that goes far beyond their mission, there was definitely a mission creep.”
In fact, the concept that the Fed needs an overhaul is supported on Wall Street.
Mohamed El Elian, a former PIMCO executive and now Chief Economic Advisor for Allianz, recently insisted that Powell resign as chairman to avoid the current battle with independence. He further said that the Fed’s own policy mistakes will help spark the current battle.
“This is the exact world I was worried about,” El Elian told CNBC on Friday. “The Fed is vulnerable in so many different ways and I’m worried that we’ve begun to go this truly terrifying path.”
Among the reforms El Erian spoke about, it included chasing after the Bank of England and allowing “outside members” to “external members” to “bring a perspective on differences and helping to reduce the risk of group thinking.
He also said the Fed should rethink its 2% inflation target.
Endgame
But critics say what Trump is talking about is more than just structural reform.
“This is a story about trying to revoke what was truly a Fed independence in ’90,” former Federal Reserve Vice-Chairman Roger Ferguson said of CNBC. “The overall goal was to give the Fed independence in doing this very important thing that sets monetary policy, and for the first time now we can see a direct effort to undermine it.”
How successful Trump is is another matter.
He currently has two appointees, Christopher Waller and Michelle Bowman, on the board. Stephen Milan is waiting for a Senate confirmation to fill the seats that have been vacant with Adriana Coogler’s resignation. If Powell loses his term as a chair next May, it will create another vacant seat and give the president five seats.
However, it is dangerous to rely on all of these members as automatic voting.
Both Waller and Bowman have taken both the out-of-continued Hawkish and Devish positions, depending on the situation, indicating a strong independent streak that is unlikely to be a “small apocalypse for Trump.”
The judge, a professor in Columbia, added:
Also, the possibility of getting in the way is a series of court tests focusing on whether Trump has a “cause” that would eliminate a cook or someone else.
If the president succeeds, Krishna Guha, head of Evercore ISI’s global policy and central bank strategy, said it could have a wide-ranging impact on the economy and markets.
“The baseline case at this point should be a very substantial Trumpization of the Fed until 2026, and although this does not automatically correspond to a big lurch in policy and practice, we believe that we need to be very seriously considered the possibility that this could lead to bursts of past practice and materially different reactive functions with materially different reactive functions with important market impacts,” Guha said.
The Fed’s future as a facility also has a high interest.
“Thanks to what Trump is doing, there was never a threat to cultivating independence in our entire history as a republic like it is now,” Hockett said. “I think long-term trust in our central bank, and therefore our currency, will be hit by yet another blow.”
