Trump Accusations Spark Fed Independence Concerns

President Trump’s announcement that he has “removed” Fed Governor Lisa Cook from her position has sparked significant unease on Wall Street and among financial analysts. The move, based on allegations that she may have made false statements on mortgage agreements, has been widely viewed as an attempt to influence the Federal Reserve’s monetary policy, which traditionally operates independently of political pressures. Cook, appointed by President Biden, has consistently supported the Fed’s decision to maintain the federal funds rate in the 4.25% to 4.5% range, a stance that has drawn Trump’s ire. Trump has previously criticized Fed Chair Jerome Powell for what he describes as a “Too Late” approach to rate adjustments [1].

Bill Pulte, a Trump appointee and head of the Federal Housing Finance Agency (FHFA), initially raised concerns on social media, alleging that Cook had claimed two primary residences in 2021 to secure better mortgage terms. Cook has denied any wrongdoing and has stated she will provide accurate information to address the allegations. However, she has also indicated no intention to resign under pressure from political figures, calling out what she described as attempts to “bully” her into stepping down [1].

The potential removal of Cook, followed by the appointment of a more dovish replacement, aligns with Trump’s broader effort to reshape the Federal Open Market Committee (FOMC) to reflect his economic views. Earlier this summer, the resignation of Fed Governor Adriana Kugler created an opening, which Trump has used to nominate Stephen Moran as a temporary replacement. The focus is now shifting toward the eventual replacement of Powell, with the 2026 election looming as a key moment [1].

UBS’s Paul Donovan described the move as “completely unprecedented” and noted that while the legality of the firing remains in question, it signals a broader challenge to the Fed’s institutional independence. He warned that if the dismissal holds, the Senate will be required to confirm a successor, a procedural hurdle that may not fully restore market confidence. Meanwhile, regional Fed presidents will continue to advocate for independent policy decisions, which could mitigate the immediate market fallout [1].

Market reactions were initially jolted by the news, with the dollar dropping nearly 0.4% on the announcement. However, much of that decline reversed within hours. Gold surged by 1%, and both the S&P 500 and Nasdaq experienced declines. The Treasury yield curve steepened significantly, with the 10-year and 30-year yields rising to 4.93%. Deutsche Bank’s Jim Reid observed that the dollar’s decline and the steepening yield curve reflect the broader uncertainty over U.S. monetary policy and governance [1].

Skanda Amarnath, a former Fed economist, warned that Trump’s actions could further erode confidence in American institutions, leading to higher commodity prices and a weaker dollar. He emphasized the importance of maintaining the Fed’s independence, especially as Trump continues to push for aggressive policy changes that align with his economic vision. Amarnath called for Chair Powell to resist “arbitrary and capricious actions” from the executive branch [1].

On the other hand, Wharton’s Jeremy Siegel downplayed the significance of Cook’s removal or replacement, arguing that the Fed has already signaled a pivot in its monetary policy. He highlighted Powell’s speech at Jackson Hole as a turning point and suggested that the debate over Cook is more of a short-term distraction than a material shift in policy direction. Siegel added that the critical question remains whether Powell will act quickly enough to meet political expectations, particularly in the event of a negative jobs report [1].

The broader economic context includes rising energy costs, which have become a political flashpoint. Energy-intensive AI data centers operated by major tech companies are consuming record levels of electricity, contributing to utility rate hikes. Some analysts attribute these trends to policy shifts under Trump, particularly the potential repeal or rollback of the Inflation Reduction Act, which aimed to expand clean energy and reduce household expenses. The divergence between AI profits and rising energy costs has raised concerns about the equitable distribution of economic benefits [2].

As the 2024 election approaches, the tension between the Trump administration and the Fed is expected to remain a focal point. The implications of perceived political interference could extend beyond domestic markets, affecting global capital flows and the credibility of U.S. monetary policy. For now, Wall Street is closely watching how these developments unfold and whether the Fed can maintain its independence in the face of escalating political pressure [1].

Source:

[1] Trump threat to fire a Fed member has Wall Street ... (https://fortune.com/2025/08/26/trump-lisa-cook-fed-white-house/)

[2] Americans' Energy Costs are Rising. You Can Blame ... (https://eng.pressbee.net/show4164487.html?title=americans-energy-costs-are-rising-you-can-blame-trump-and-big-tec)