New York —
If President Donald Trump successfully ousts Lisa Cook from her role as a Federal Reserve governor, it could give him a path to radically reshape the US central bank in an unprecedented way to achieve his goal of lower interest rates.
Trump, during his marathon Cabinet meeting on Tuesday, made a curious comment that hinted at this desire.
“We’ll have a majority very shortly and that will be great,” Trump said of the Fed Board.
If Cook’s firing withstands a likely legal challenge, Trump could indeed claim a majority of the seven members of the Fed’s powerful Board of Governors.
In addition to Cook’s seat, Trump has tapped loyalist Stephen Miran to fill a sudden vacancy. And during his first term, Trump nominated current Fed governors Christopher Waller and Michelle Bowman. (Trump also originally nominated Fed Chair Jerome Powell in 2017, but the president has since soured on Powell, who was later renominated by President Joe Biden.)
Fed watchers say a Trump-appointed majority on the Fed Board could then exert greater influence over future decisions on interest rates by using a little-known process.
While it’s typically a routine event that gets little attention, every five years the Fed Board must approve the new terms of regional Fed presidents, who vote on a rotational basis on interest rates.
That event is coming up soon, with the terms of all 12 regional Fed presidents scheduled to expire – simultaneously – at the end of February.
That means, in theory, a Trump-nominated Fed Board could reject regional presidents, for whatever reason they wish, or no reason at all.
“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,” Jaret Seiberg, financial services policy analyst at TD Cowen Washington Research Group, wrote in a note to clients this week. “That would give Trump a more cooperative FOMC,” he wrote, referring to the Fed’s rate-setting committee.
While the Fed chair gets all the attention, decisions on interest rates are voted on by all 12 members of the Federal Open Market Committee. The committee consists of the seven members of the Fed Board, as well as five regional Fed presidents: the New York Fed president and four rotating regional presidents.
There are major obstacles to any potential effort to pack the Fed with Trump loyalists, including the willingness of existing Fed governors to go along, and significant uncertainty over whether the potential firing of Cook will withstand judicial scrutiny.
Still, it’s telling that Fed watchers and economists are openly discussing this path for Trump to give the Fed a MAGA makeover.
“I think this is the most likely outcome,” Tim Mahedy, a former top official at the San Francisco Fed, told CNN.
Mahedy, now the CEO and chief economist at Access/Macro, fears the very independence of the Fed from political interference is at stake.
“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,” Mahedy said. “The alarms are going off. Break the glass.”
In a statement, the White House said Cook was “credibly accused of lying” and that the president “exercised his lawful authority” to remove her as a result.
“The President determined there was cause to remove a governor who was credibly accused of lying in financial documents from a highly sensitive position overseeing financial institutions,” White House spokesman Kush Desai said in the statement. “The removal of a governor for cause improves the Federal Reserve Board’s accountability and credibility for both the markets and American people.”
The 12 regional Fed banks stretch across the country: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
Regional Fed presidents are selected and reappointed, initially, by each bank’s local directors, who typically include local business and nonprofit leaders. But those selections must be approved by the Washington-based Fed Board of Governors.
Jim Bianco, president of Bianco Research, said on X that the Fed Board has “never” voted down a regional Fed president or removed one from power.
However, Bianco noted that Bowman and Waller, both Trump-appointed Fed governors, did abstain from the vote to approve Chicago Fed President Austan Goolsbee in January 2023. Goolsbee served as one of the top economists in the Obama White House.
“Presumably, they could be persuaded to vote ‘no’ to Goolsbee’s next term,” Bianco said, adding that NY Fed President John Williams could also be targeted.
“The Federal Open Market Committee (twelve district bank presidents and seven governors) would undergo a radical reconstruction, not unlike the Fed’s Washington building complex,” Bianco said.
Narayana Kocherlakota, a former president of the Minneapolis Fed, told CNN that while much of this is still speculative, it is a “logical possibility” that the Board of Governors could be used as a way to “influence monetary policy.”
Kocherlakota, now a finance professor at the University of Rochester, favors the Fed Board taking a more active approach toward the reappointments of Fed regional presidents.
“Typically, this is a very routine process. It would be good to have a more open and deliberate process,” he said.
Kocherlakota said it would make sense for Fed governors to more seriously debate whether regional Fed presidents are collegial and also whether they adhere to ethical standards.
However, he warned against linking Fed Board approval to whether regional Fed presidents favor the White House’s preferred policy stance of low rates.
“That would be crossing a line. It would be quite troubling,” Kocherlakota said.
The Fed is designed to be independent from politicians – and that’s no accident.
While politicians may prefer low rates to please voters with faster economic growth and surging stock prices, ultra-low rates can backfire by fueling inflation and driving up mortgage rates and long-term interest rates.
The Fed is required by Congress to focus not just on maximum employment, but on stable prices, too.
Seiberg, the Cowen analyst, noted that any effort to pack the Fed with Trump-aligned picks faces “hurdles.”
First, Trump’s effort to force out Cook may fail – or drag out.
Cook, the first Black female Fed governor, has struck a defiant stance and her lawyer signaled a lawsuit challenging her termination is imminent.
There’s just a 25% chance that Cook is out as Fed governor by year-end, according to prediction platform Polymarket.
Seiberg noted the Fed Board typically approves regional Fed presidents in late January – around a month before their terms expire.
“The courts may still be resolving Cook’s status at that time. Without a replacement for Cook in office, Trump may lack the needed votes,” Seiberg said.
Another big question is whether Waller and Bowman would cooperate with any effort to override the votes of local officials.
Waller, viewed as the odds-on favorite to replace Powell when his term expires in May, is viewed as more of an institutionalist than a radical.
Waller is a “traditional GOP pick for the Fed, rather than a MAGA pick,” Seiberg wrote.
Bowman may not be on board, given that before joining the Fed, she worked in community banks and as a state regulator in Kansas.
“We see a path for Trump even if it is unclear yet if he will go down it,” Seiberg wrote.
