President Trump’s move to fire Lisa Cook could be the final piece he needs to take over the Fed. If it works, he could restructure the FOMC and approve rate cuts without even replacing Powell.
Seven Governors control the Federal Reserve and its District Bank Governors, and Trump already appointed three of them. If a new majority disregards precedent, it’d have tremendous power to set fiscal policy.
Trump’s New Fed Gambit
President Trump has quarreled with Fed Chair Jerome Powell on many occasions, threatening to fire him over interest rate cuts. The Fed has remained resolute, as the Supreme Court ruled that the President cannot fire its Chairman.
Last night, however, Trump took a new strategy, moving to fire one of its Governors, Lisa Cook.
This move is particularly interesting for a few reasons. First of all, Cook is categorically refusing to step down, claiming that Trump doesn’t have this power over the Fed. She’s even planning to sue. Moreover, Powell offered Trump an olive branch last week.
So, why is this aggression happening now? Several TradFi analysts are raising the alarm, claiming that this may herald the end of the Fed’s independence:
Essentially, Trump could be enacting a plan to seize control of the Fed without actually firing Powell. Cook is one of seven Fed Governors, who are appointed by the President but run the Fed independently.
Collectively, they approve Fed District Bank Presidents and have the power to depose them at will.
Restructuring at the FOMC?
Together, the Governors and District Presidents make up the FOMC. In other words, the Governors could be Trump’s mechanism to radically restructure the Fed. If Trump successfully ousts and replaces Cook, he’ll be able to execute whatever changes he wishes.
Specifically, he already appointed two of the seven Governors in his first term, nominated a third this year, and Cook’s replacement would make four. Jim Bianco, a financial analyst, detailed how this could give Trump new powers:
“All District Bank Presidents are ‘at-will’ employees of the Federal Reserve Board of Governors, meaning the board can vote them out for any reason, or no reason, whenever they want. The Fed Board of Governors has never voted ‘no’ to a Federal Reserve district bank president, let alone removed one. There have, however, been two governors who have abstained from voting,” Bianco claimed.
In 112 years of Fed history, the only abstention was when two Trump appointees refused to vote for Austan Goolsbee, a Democrat, in 2023.
In other words, this authority to fire District Bank Presidents has never been used, but it’s nonetheless very real. Tradition and precedents are the only things keeping it in check, and they’ve already been broken.
If Trump replaces Cook, these Governors could replace Democrats on the FOMC in short order. If the Supreme Court agrees to fire Cook, there will be no other mechanism to fight this process legally.
At that point, Trump could essentially order the Fed to cut interest rates, whether Powell likes it or not.
How Crypto Could React to the Fed Drama
So, what does this mean for crypto? First of all, these plans will take a few months to bear fruit, regardless of what happens. Rate cuts are bullish for crypto, and the Fed could further tailor economic policy to suit the industry’s needs.
In other words, this plan could create an unprecedented opportunity for crypto investments.
However, this is contingent on the system remaining intact. Rate cuts also signal economic uncertainty, and there are a lot of bearish signs in the US market right now.
If Trump orders the Fed to favor the crypto industry in the short term, it could run out of tools to fight off an actual recession.
In other words, the crypto industry shouldn’t be too excited about Trump controlling the Fed. It could cause a lot of problems, even from a US-only perspective, let alone considering international investments or the bond market.
A partisan Fed would break fundamental rules in US fiscal policy, and anything could happen afterwards.
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