• Economics
• United States

August 26, 2025, 1:21 PM View Comments ()

U.S. President Donald Trump’s latest assault on the independence of the U.S. Federal Reserve, and by extension the stability of the U.S. and global financial systems, came in his attempted firing on Monday of Lisa Cook, a Federal Reserve governor.

The move is his latest attempt to force the U.S. central bank to do his bidding—namely, to lower interest rates in a bid to turbocharge economic growth on his watch. And it comes after a yearslong campaign against Federal Reserve chair Jerome Powell, whom Trump himself named to the post. 

The move against Cook, the first Black woman to be appointed as a Federal Reserve governor, is unprecedented and legally dubious, since the president can only remove a Fed governor for cause. Trump and his administration officials say Cook had irregularities on a mortgage application before she joined the Fed—the same accusations that Bill Pulte, Trump’s appointee to lead the Federal Housing Finance Agency, made against New York Attorney General Letitia James, who previously investigated Trump, and Democratic Sen. Adam Schiff, who led the House of Representatives’ investigation into Trump’s Russia ties while serving as a representative from California.

The move against Cook is part of the Trump administration’s wider assault on the independence of economic agencies and actors who have defied him. Trump recently ousted the head of the labor statistics agency that compiles monthly unemployment data, a key metric of the health of the U.S. economy. The U.S. government’s ability to track inflation is also in doubt after Trump’s purge, making it difficult for companies and investors to compile accurate information about prices and spending.

Cook said she will not resign and will continue to carry out her duties on the seven-member Federal Reserve Board of Governors, part of the 12-person committee that determines interest rates, money supply, and essentially the thermostat of the entire global economy. Markets reacted with skepticism about Trump’s ability to prevail over the Federal Reserve, but they signaled concerns about long-term inflation risks as the independence of the nearly 112-year-old U.S. central bank is challenged as never before. 

Ironically, Trump’s efforts to defenestrate the Federal Reserve come after the world’s most important central bank already flagged that it was going to lower its critical short-term interest rates. 

Powell said in a key speech in Jackson Hole, Wyoming, last week that the Federal Reserve will likely have to trim short-term lending rates to respond to challenges in Trump’s economy—but not because Trump has been asking for lower interest rates for years. Rather, Powell said that the combination of tariffs, which are bad for inflation, and a job market constrained by Trump’s crackdown on immigration, which is bad for employment, makes for challenging monetary policy. But, given that the job market is so weak, Powell said, the Fed will have to cut interest rates in order to avoid a worse car crash than simply the higher prices that got Trump elected the second time around.

“Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers,” Powell said in his speech. “This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.” 

The markets have all but baked in a very moderate interest-rate cut from the Fed in September, but that is less than the monetary fuel injection that Trump is seeking. Higher inflation—always a possibility with a cascade of new tariffs landing in the third quarter—could derail those tentative Fed plans, said Benn Steil, director of international economics at the Council on Foreign Relations. That said, the attempted ouster of a Fed governor is alarming.

“I think the Cook firing, if it happens, is a huge deal. ‘Unpresidented,’ as Trump once said,” he said.

Even so, Trump has redoubled his efforts to remake the U.S. central bank in his own image to do his bidding, despite the bank’s charter-enshrined independence, which is the rock upon which the solidity of the U.S. dollar rests, or rather rested.

Interfering with the independence of a central bank is always risky, but it is especially so when that central bank is the most important one in the world. The U.S. Federal Reserve determines the courses and contours not just of U.S. monetary supply, inflation, and economic growth, but also that of nearly every economy in the world. 

But it is a wildly risky course to take when so much evidence is at hand that destroying central bank independence in a quest for a short-term economic sugar high is a recipe for long-term pain. Take Turkey. 

Turkish President Recep Tayyip Erdogan, frustrated that the Turkish central bank was using orthodox tools such as higher interest rates to tame inflation, replaced the bank’s leadership with cronies and ordered the bank to open the money spigots to create the illusion of economic growth. And the spigots opened: The Turkish economy, flooded with cheap money due to presidentially ordered rate cuts, topped out with inflation above 80 percent annually, before Erdogan relented. Even years later, with professionals back at the helm, Turkey is struggling to wrangle inflation down under 30 percent. 

Trump in his third campaign for president, and even more so since, promised he would seek to weaken the dollar, make it harder to trade, unleash inflation, and go after the institutions that made America great the first time around. The only amazing thing is how fast he has swung that wrecking ball.