Original author: Zhu Xueying
Source: Wall Street Journal
Reprinted by: White55, Mars Finance
Trump just made a major move! He announced on social media that he would remove Federal Reserve Board Governor Lisa Cook from her position "effective immediately."
The unprecedented move rattled financial markets, sparking widespread skepticism. U.S. stock futures fell, with the Nasdaq 100 contract down 0.2%. Risk aversion pushed the yen higher against the dollar, while gold pared earlier losses.
If Trump's move succeeds, he will be one step closer to controlling the Federal Reserve. Cook's departure would give Trump the potential to secure four seats, giving him a majority on the seven-member board. Trump appointed two of the current board members during his first term and recently nominated Stephen Miran, chair of his Council of Economic Advisers, to fill the third seat recently vacated by Adriana Kugler, a Biden appointee.
Nick Timiraos, a Wall Street Journal reporter known as the "New Fed News Agency," analyzed in a recent article that Trump has already appointed two members to the seven-member Federal Reserve Board. If he wins two more nominations, he will secure a majority, potentially fundamentally reshaping the entire Federal Reserve system.
And according to Timiraos' analysis, if Trump wins a majority on the Federal Reserve Board by March next year, they may refuse to reappoint regional Federal Reserve presidents, thereby gaining control of the FOMC meetings.
Unprecedented dismissals shake Wall Street
In the letter, Trump accused Cook of "fraudulent and potentially criminal conduct" in financial affairs and said such behavior had undermined his credibility as a regulator.
Citing Article II of the U.S. Constitution and relevant provisions of the Federal Reserve Act of 1913, Trump stated that he had determined sufficient cause to remove Cook. The letter referenced a criminal referral filed by the Federal Housing Finance Agency on August 15th, alleging that Cook made false statements in mortgage documents. For example, she stated a property as her primary residence on one Michigan document and later made the same statement on another in Georgia. Trump called this action "unthinkable" and questioned Cook's integrity and competence as a financial regulator.
Trump's threat to fire Cook marks a significant escalation in the White House's pressure on the Federal Reserve. If Trump succeeds in removing Cook, it would set a precedent in US history – no sitting Fed governor has ever been fired by a president. Markets are concerned this could trigger a constitutional crisis and exacerbate market volatility.
Previous political conflicts, including President Johnson's heated confrontation with Federal Reserve Chairman William McChesney Martin and President Nixon's pressure on Arthur Burns, did not result in actual dismissal.
Claudia Sahm, chief economist at New Century Advisors and former Federal Reserve economist, once said,
"This is a new way for this administration to try to control the Federal Reserve, and they are using every tool they can find to achieve that control."
Does the president have the power to remove a Fed governor? Yes, but only under certain conditions.
Legal experts stressed that the (Federal Reserve Act) clearly states that governors "may be removed by the President for cause," but this requires solid evidence of misconduct, such as dereliction of duty, malfeasance or inability to perform their duties, rather than political motivation.
Although Bill Pulte, director of the Federal Housing Finance Agency (FHFA), previously accused Cook of lying on loan applications to obtain more favorable terms and engaging in mortgage fraud, the allegations against Cook have not yet been proven in court, and the Department of Justice has only stated that it will investigate the allegations.
Earlier, Trump posted a photo of Cook marked with a red cross on his social media platform Truth Social, calling her a "fraud." Cook is the first Black woman to serve on the Federal Reserve Board and joined the Fed in 2022. Massachusetts Senator Elizabeth Warren condemned Trump's actions on social media as "illegal and politically motivated."
Trump's "three-step approach" to controlling the Federal Reserve is gradually being implemented
Some analysts believe that if Cook leaves, Trump will have the opportunity to appoint a fourth Fed governor, securing a majority on the seven-member board. Trump appointed two of the current governors during his first term and recently nominated Stephen Miran, chairman of his Council of Economic Advisers, to fill the third seat recently vacated by Adriana Kugler, who was appointed by Biden.
On August 24th, Nick Timiraos, a Wall Street Journal reporter known as the "New Fed News Agency," analyzed in a recent article that Trump has already appointed two members to the seven-member Federal Reserve Board. If he receives two more nominations, he will secure a majority, potentially fundamentally reshaping the entire Federal Reserve system.
Furthermore, Timiraos analysts believe that if Trump secures a majority on the Fed Board of Governors by March of next year, they may refuse to reappoint regional Fed presidents. Dismissing those presidents who are performing their duties conscientiously would break decades of precedent and breach a critical firewall that has protected the Fed's independence since its founding in 1913.