Trump's War on the Fed: 600 Economists Sound the Alarm on Democracy and Dollars

Six hundred U.S. economists have voiced strong concerns over President Donald Trump’s attempts to assert political control over the Federal Reserve, particularly through his effort to remove Governor Lisa Cook. In a joint letter, the economists argue that such actions threaten the foundational independence of the central bank, a principle they describe as crucial for maintaining economic stability and public trust in the U.S. financial system. The letter emphasizes that weakening the high standard for removing Fed governors could increase monetary policy uncertainty and lead to higher interest rates and borrowing costs for consumers and businesses [1].

Cook is contesting her removal in court, asserting that the allegations against her—related to mortgage fraud—rest on unverified and politically motivated claims. Her legal team criticized the allegations as “cut-and-paste” and politically motivated, arguing that they lack sufficient legal basis to justify her firing. The lawsuit has highlighted concerns that Trump’s actions represent a broader strategy to reshape the Fed in line with his policy preferences, particularly on interest rate cuts [2]. European Central Bank President Christine Lagarde has also warned that any further erosion of Fed independence could pose a serious economic risk not only to the U.S. but to the global economy [3].

The dispute has intensified amid Trump’s repeated calls for the Fed to lower interest rates more aggressively, including a demand for a 3 percentage point cut. Fed Chair Jerome Powell, however, has signaled a more cautious approach, indicating a likely quarter-point cut in September as the central bank seeks to balance its dual mandate of price stability and maximum employment. Economists warn that Trump’s push for rate cuts could lead to inflationary pressures, echoing historical precedents where political interference in central banking contributed to long-term economic instability [4].

Legal experts and policymakers are closely watching the outcome of the ongoing litigation, which could set a precedent for future presidential influence over the Fed. If successful, Trump’s removal of Cook would allow him to appoint a replacement aligned with his economic agenda, potentially altering the balance of the Fed’s board. This has raised concerns about the broader implications for the Fed’s operational independence, a principle enshrined in its structure to insulate it from short-term political pressures [4].

While some voices within the administration argue for increased democratic accountability at the Fed, critics warn that political control over monetary policy could lead to short-term gains at the expense of long-term economic stability. Nobel Prize-winning economist Paul Krugman has described Trump’s approach as “crazy and irresponsible,” warning that a loss of Fed independence could result in higher long-term interest rates and greater economic volatility. The debate reflects a fundamental tension between political oversight and the need for an independent institution capable of making difficult, data-driven decisions without political interference [5].

As the Fed prepares for its next rate decision in September, the economic community remains divided. While some economists support more aggressive rate cuts to address potential labor market risks, virtually none agree with Trump’s proposed 3 percentage point reduction. The outcome of the legal battle over Cook’s removal and the broader question of the Fed’s independence will have lasting implications for U.S. monetary policy and global financial markets [1].

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[1] Fed Governor Lisa Cook did not commit mortgage fraud (https://www.cnbc.com/2025/09/02/trump-lisa-cook-fed-powell-fraud.html)

[2] Lisa Cook Blasts Trump's 'Cut-and-Paste' Mortgage Fraud ... (https://finance.yahoo.com/news/lisa-cook-blasts-trump-cut-202007307.html)

[3] World leader issues warning to Trump on Fed independence (https://www.foxbusiness.com/economy/world-leader-issues-warning-trump-fed-independence)

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

[5] Nobel Prize-Winning Economist Raises Alarm Over Trump ... (https://www.newsweek.com/donald-trump-federal-reserve-interest-rates-powell-2122991)