Donald Trump has opened another front in his campaign to assume control of the United States Federal Reserve, with an analyst at TD Securities saying it creates a plausible path for the president to reshape the central bank to favour the interest rate cuts he is seeking.
Trump announced on Monday that he fired Lisa Cook, one of seven Fed governors that make up its board, alleging in a letter to her that she had made "false statements" regarding two mortgages for homes in Michigan and Georgia. Cook has since responded that she will not step down and has hired a lawyer to fight the firing.
"President Trump's decision to fire Lisa Cook as Fed governor gives him the ability to gain a majority at the Federal Reserve Board and to influence the broader composition of the FOMC (Federal Open Market Committee)," Jaret Seiberg, an analyst at TD Securities, said in a note. "If it works, it would give Trump more influence over the FOMC and interest rates."
Cook's firing hands Trump a second opportunity to name someone to the Fed after he recently nominated Stephen Miran, his economic adviser, to temporarily fill an upcoming vacancy on the Fed board.
The president is responsible for appointing all members of the board, so if Cook's firing goes through, in theory, its membership would be a four-three split in favour of rate cuts.
"We expect Miran and the Cook replacement to join Fed vice-chair Michelle Bowman and Fed governor Chris Waller in supporting interest rate cuts," Seiberg said.
Bowman and Waller, Trump appointees from his first term as president, dissented from the rest of the Fed governors when they held interest rates at the last meeting on July 30. It was the first time there had been two dissenting votes since 1993.
Dissent at the Fed can negatively impact stocks and lead to higher inflation expectations, Torsten Slok, chief economist at Apollo Global Management Inc., said in a note.
It's no secret that Trump favours interest rate cuts, which he is seeking to lower the value of the U.S. dollar and ease borrowing costs. As such, he has railed against the Fed for holding rates in the current range of 4.25 per cent to 4.5 per cent over the past three meetings and directed much of his ire at chair Jerome Powell, who he wants to be fired.
But investors are worried that a Fed beholden to the president's political agenda could upend efforts to keep inflation in check, one of the central bank's main jobs.
It's not just the board membership that market watchers and economists are worried about.
They also fear that a Trump-friendly board could influence the selection of presidents at the 12 Federal Reserve banks that operate in cities across the U.S. All the positions are up for renewal in early 2026.
"Such a scenario — stacking the board and regional presidents — in my opinion risks a severe blow to confidence in U.S. markets," Derek Holt, vice-president and head of Bank of Nova Scotia Capital Markets Economics, said in a note.
Seiberg said Miran, Cook's replacement, Bowman and Waller could influence the selection of all 12 Reserve Bank presidents.
"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. That would give Trump a more co-operative FOMC," he said.
That all sounds like a lot of manoeuvring, but opposing Trump seems to melt away, with many global players opting for "appeasement," David Rosenberg, chief executive of Rosenberg Research & Associates Inc., said in a note.
For example, Prime Minister Mark Carney last week announced that Canada was dropping counter tariffs on imports from the U.S. that comply with the Canada-U.S.-Mexico Agreement.
"Let’s face it: everybody is scared of the president, including those in his own party in Congress, his own cabinet and foreign leaders," Rosenberg said.
