Trump Team Weighing Options to Extend Influence to Fed Banks

President Donald Trump said he was prepared for a legal fight with Federal Reserve Governor Lisa Cook after he moved to oust her from her post following allegations that she falsified mortgage documents.

The Fed, weighing in for the first time this week, said it would abide by any court decision in Cook’s legal challenge of her dismissal by Trump. A Fed spokesperson added the central bank has deferred any decision on Cook’s current working status, and noted there is no official business before the Fed board this week.

“Lisa Cook has indicated through her personal attorney that she will promptly challenge this action in court and seek a judicial decision that would confirm her ability to continue to fulfill her responsibilities as a Senate-confirmed member of the Board of Governors of the Federal Reserve System,” the Fed said in a statement.

Bloomberg US Economy Reporter and Editor Matt Boesler joins Bloomberg Businessweek Daily to discuss.

Scrutiny from the administration of the process for selecting and reappointing reserve bank presidents — responsibility for which is shared between the private-sector boards of those banks and the Board of Governors — would mark another extraordinary step in Trump’s ongoing campaign to influence monetary policy, which has traditionally been provided some insulation from political pressure.

The Board of Governors is next scheduled to authorize the current roster of reserve bank presidents in a once-in-five-year exercise in February. That event now looms large in the wake of Trump’s declaration of Cook’s removal from her post, which followed allegations by the administration that she had engaged in mortgage fraud. Cook aims to contest the move, her lawyer said Tuesday.

Several of the Fed’s regional presidents began to grow concerned earlier this summer about what Trump’s plans for the central bank could mean for their jobs, according to people familiar with the matter. The president’s announcement late Monday exacerbated those concerns, with presidents making a round of calls to each other about what Cook’s firing could mean for them, according to one person familiar with the matter.

A Fed spokesperson declined to comment. The White House did not immediately respond to a request for comment.

‘Stone’ Turning

“This White House is turning over every stone to see where the levers are to change the Fed,” said Derek Tang, an economist at LHMeyer/Monetary Policy Analytics.

One of those levers could be the vote to reauthorize regional bank presidents. Once the administration secures a majority on the Board of Governors, it could indirectly pressure Fed officials perceived as more hawkish by using their reappointment vote as a new tool at its disposal, according to Tang.

“In the past, we just sort of took for granted that it happened,” he said of the reauthorization votes.

A person familiar with the matter said the administration’s goal isn’t to make the central bank more dovish, but to scrutinize how regional presidents are vetted and chosen since they are not Senate-confirmed.

The five presidents who serve on the rate-setting FOMC are made up of the New York Fed chief and four of the remaining 11 bank heads, who serve on an annually rotating basis.

Former Fed Vice Chair Lael Brainard warned that any political push to revamp the FOMC by ousting multiple reserve bank presidents would run the risk of stoking inflation and longer-term interest rates.

‘Unprecedented Attack’

Attempting to “shift the overall voting majority on the FOMC — that is an unprecedented attack on the independence of the Federal Reserve,” Brainard, who was nominated to the Fed board by President Barack Obama, said on Bloomberg Television Tuesday.

Since returning to the White House, Trump has subjected the Fed to relentless demands for lower interest rates. The central bank, under the leadership of Jerome Powell, has so far this year brushed those demands aside, holding its benchmark rate steady amid concerns the president’s tariffs will boost inflation.

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