"Trump's Fed Power Play Threatens Economic Stability"

U.S. Treasury Secretary Reaffirms Fed Independence Need

U.S. Treasury Secretary and top economic officials have emphasized the importance of maintaining the Federal Reserve’s independence as tensions between the administration and the central bank escalate. The issue has gained prominence following President Donald Trump’s unprecedented attempt to fire Lisa Cook, the first Black woman on the Fed’s seven-member board. Legal experts and economists have raised concerns over what they view as a significant threat to the Fed’s institutional independence, a cornerstone of the U.S. economy’s stability for over a century [1].

Trump justified the move by citing allegations of mortgage fraud by Cook, but the governor has countered that the claims are a pretext to gain control over the Fed. The lawsuit filed by Cook seeks a temporary block on her removal while the legal process unfolds. If successful, Trump’s replacement of Cook would shift the board’s balance in favor of his appointees, creating a 4-3 majority [1].

The central bank plays a pivotal role in controlling inflation and steering economic growth through its interest rate policy. Economists warn that if the Fed is influenced by political demands, the consequences could include higher inflation, which would eventually lead to increased borrowing costs for consumers and businesses. Trump has publicly called for the Fed to reduce its key rate to 1.3%, down from its current level of 4.3%, a move that could overstimulate the economy and raise inflation risks [1].

Stephen Miran, a top White House economic adviser, has also been nominated to the Fed’s board to replace Adriana Kugler. Miran recently pledged to lawmakers that he would act independently if confirmed, despite not resigning from his current position. Some members of Congress questioned how he could maintain impartiality while remaining in the administration. Miran previously advocated for structural reforms that would increase the president’s oversight of the Fed and shorten the 14-year term of its governors to enhance democratic accountability [2].

Legal scholars argue that the Fed’s independence was deliberately designed to shield it from short-term political pressures, allowing it to make difficult but necessary decisions for long-term economic stability. Jane Manners, a law professor at Fordham University, emphasized that the Fed’s independence ensures that economic policies are driven by expertise rather than political interests [1].

Despite these concerns, some administration officials maintain that the Fed should be more accountable to the public. Vice President JD Vance argued that the current structure of the Fed gives a small group of officials unchecked power over critical economic decisions without sufficient democratic input. Miran, in a paper published by the Manhattan Institute, proposed reforms aimed at balancing independence with greater accountability [2].

The Fed’s governance structure is also at risk of further changes, with the reappointment of regional Fed bank presidents set to be a contentious issue in the coming months. These reappointments could become a battleground if the administration seeks to exert more influence over the Fed’s decision-making processes. Adam Posen, president of the Peterson Institute for International Economics, warned that interference in the reappointment of these regional leaders could signal a broader breakdown in the Fed’s institutional integrity [1].

Source:

[1] What it could mean for the Fed to lose its independence (https://apnews.com/article/federal-reserve-trump-powell-cook-interest-rates-65f53b88f35f6fd4c670ce43efd6d852)

[2] Stephen Miran pledges to uphold Fed independence without giving up White House role (https://finance.yahoo.com/news/stephen-miran-pledges-to-uphold-fed-independence-without-giving-up-white-house-role-181511975.html)