The Economist: Trump “fires” Lisa Cook, escalating his war on the Federal Reserve

Key topics:Trump fires Fed governor Lisa Cook, sparking legal uncertainty.Markets react nervously: dollar down, S&P futures drop slightly.Political meddling threatens Fed independence and rate policy..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..From The Economist, published under licence. The original article can be found on www.economist.com© 2025 The Economist Newspaper Limited. All rights reserved..The Economist.Donald Trump has not been shy: he wants interest rates down, fast. For months, the president has berated the Federal Reserve for dithering and cutting rates too slowly. In July he flirted with firing Jerome Powell, the Fed’s chair, but backed off. Another angle of attack opened up when Bill Pulte, the head of the Federal Housing Finance Agency, claimed that Lisa Cook, a governor on the central bank’s board, had lied on her mortgage applications.This time, the president has pounced. In a letter on August 25th posted to Truth Social, his social-media platform, he announced that he was sacking Ms Cook “effective immediately”. She, in turn, issued a statement saying Mr Trump has no authority to fire her and refused to resign. The legality of the president’s move is highly uncertain. A Supreme Court judgment in May all but confirmed that Fed governors can only be sacked “for cause”, and Ms Cook has not been indicted, let alone convicted, of any crime. The allegations, which the Department of Justice is investigating, relate to paperwork submitted before Ms Cook took her post. There is little precedent: no Fed governor has been fired for cause before.The move marks a dramatic escalation in Mr Trump’s battle with the Fed—the agency of the American government that is best insulated from political meddling, in order to allow for monetary policy to be set independently. In normal circumstances Fed governors have long tenures and, by design, are hard to dislodge. Ms Cook’s term is set to run until 2038. But what has so far been a war of words is now all but certain to be fought in the courts. Should Mr Trump eventually be granted a relatively free hand to sack Fed governors, central-bank independence in America would start to look fragile indeed.Markets have reacted nervously. The dollar fell by 0.3% in the hours after the announcement. The S&P 500 index of large American stocks fell by nearly 0.5% in futures trading, and ten-year Treasury yields rose by 0.04 percentage points. That is an uncomfortable combination, reflecting American assets cheapening across the board. But so far, the declines have not been enormous. Investors are treating the news as merely unwelcome, perhaps waiting to see exactly how things will turn out..Read more:. How a Donald Trump return could threaten Fed independence.Earlier this month Mr Trump also used Truth Social to fire Erika McEntarfer, the head of the Bureau of Labour Statistics (BLS), after revisions to employment data showed that jobs growth had sharply weakened. He has proposed replacing her with E.J. Antoni, a Trump-aligned economist. Although politically motivated data-fiddling and rate cuts are still some way off, each is easier to imagine today than at the start of the year. Mr Trump would have to flip several more seats at the Fed before having any hope of persuading a majority of rate-setters to vote for more than a handful of cuts. And the thousands of civil servants involved in compiling America’s economic data would surely sound the alarm if Mr Antoni tried to manipulate the jobs or inflation figures.All the same, previously non-partisan parts of America’s policymaking machine have been dragged into the political fray, and may well stay there. Moreover, Mr Trump’s actions will almost certainly prove self-defeating, by making his ultimate goal—lower borrowing costs for the federal government and ordinary Americans—much harder to achieve. The Fed controls only short-term interest rates; longer-term rates are set by the bond market. Between blow-out deficits and the threat that political interference might keep inflation high, investors are getting skittish. The yield on 30-year Treasuries is nearly 5% and has stayed elevated over the past few months, even as the economy has slowed. If Mr Trump found high interest rates unwelcome when growth was strong, combining them with weak growth would be more unpleasant still.

The Economist: Trump “fires” Lisa Cook, escalating his war on the Federal Reserve

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From The Economist, published under licence. The original article can be found on www.economist.com

© 2025 The Economist Newspaper Limited. All rights reserved.

The Economist

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