NBC news reports:
President Donald Trump said Wednesday on Truth Social that Federal Reserve Governor Lisa Cook “must resign, now!!!”
Trump’s comment came after the director of the U.S. Federal Housing Finance Agency, William Pulte, a sharp critic of the Fed, alleged in a letter to Attorney General Pam Bondi that Cook “falsified bank documents and property records to acquire more favorable loan terms, potentially committing mortgage fraud.”
Pulte and Bondi are framing this issue as an attempt by principled public servants—i.e., Pulte and Bondi—to root out corruption at the Federal Reserve. More careful observers know the real reason this is happening, however. The accusations leveled against Biden-appointee Cook are the just the latest salvo in the ongoing battle between the White House and the Fed over how low the Fed should set the target policy interest rate.
Almost everything the Trump White house does in relation to the Fed should be interpreted through this lens. Within weeks of his second inauguration, Trump began to repeatedly criticize Fed Chairman Jerome Powell and the Fed’s Federal Open Market Committee (FOMC) for not forcing down the target policy interest rate (i.e., the federal funds rate) far enough to suit the administration. Trump has repeatedly demanded a lower target rate both for purposes of “stimulating” economic growth, and to bring down borrowing costs for the federal government.
Under Powell, the Fed has hardly been hawkish, of course, and Powell is not a “hard-money” guy. But, one of the odd developments of this presidential administration is that in comparison to the President, Powell looks relatively reasonable. For example, Trump has been repeatedly demanding more monetary inflation through ultra-low-interest-rate policy even though CPI-measured price inflation has remained stubbornly high. At the same time, stocks, gold, and Bitcoin, have all been in the midst of a meltup. Even home prices, in spite of plummeting affordability, have just recently begun to moderate. This suggests liquidity is everywhere, contrary to what Trump apparently believes, and this has, for now, suggested that Powell is the less-bad of the two when it comes to monetary policy.
In his efforts to pressure the Fed to force down the target interest rate even more, however, Trump has leveled a variety of accusations at Powell and other Fed personnel. For instance, Trump has used the Fed’s runaway spending on new building renovations as an avenue for attacking Powell in general. Trump has also suggested—probably wrongly—that he has the legal prerogative to fire Powell. Now, Trump and his supporters are attacking Fed Governor Cook for alleged corruption.
Cook may very well guilty of corruption, of course. That would hardly be unheard of for a bureaucrat in a position like hers. But the endgame here is not to reduce corruption. The purpose of the corruption charge is to get Cook to resign and to open up another position on the Board of Governor’s for a Trump appointee. Failing that, Trump will at least succeed in further eroding the Fed’s political capital by putting a cloud of corruption over one of its voting members.
Let’s hope Trump succeeds in destroying the reputation of the Fed, but let’s also hope Trump doesn’t succeed in stacking the Fed with his own people. After all, Trump wants to make the Fed even worse than it already is by pushing the Fed to embrace even more monetary inflation. Given that ordinary people already struggle with the price inflation caused by more than a decade of easy-money policy from the Fed, Trump’s call for even more of the same is the last thing we need right now. If Trump wants to be a human wrecking ball aimed at the Fed, that’s great, but Trump’s preferred monetary policy is even worse than what we have now.
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