Fed Dodges Independence Crisis for Now, Cook to Attend Meeting, Miran Confirmed for Open Seat
Fed Independence, Cook, Miran: The U.S. central bank is facing unprecedented pressure from the White House to bring monetary policy more directly under the control of the executive branch, but it has avoided, for the time being at least, the first attempt by the U.S. president to remove a sitting Fed governor as it begins a two-day policy meeting on Tuesday.
Governor Lisa Cook will be fully present at the Fed’s policy meeting this week, according to a federal appeals court in Washington that ruled 2-1 on Monday that she could stay in her position while the lawsuit over President Donald Trump’s attempt to fire her moves forward, barring a last-minute Supreme Court intervention.
Although it falls short of the significant rate reduction the White House has called for, the central bank is anticipated to lower its benchmark interest rate by a quarter of a percentage point, to the range of 4.00% to 4.25%.
After the U.S. Senate nominated Stephen Miran, who is presently on leave as the director of the White House’s Council of Economic Advisers, to an available seat on the central bank’s seven-member Board of Governors on Monday, the Fed will likely have a new voice at the policy table in addition to Cook. Miran is anticipated to be sworn in for the meeting after receiving his 48-47 approval.
Financial markets may be more focused on the ramifications of the protracted Cook drama for the Fed as an organization and for the course of monetary policy, even if a rate drop this week would be the first of its kind since December.
Trump’s historic decision to claim he had “cause” to fire Cook due to claims she misrepresented information on a mortgage application has limited any market repercussions because courts have so far sided with Cook, avoiding the potentially disruptive removal of an independent policymaker by a sitting president.
Cook has not been charged with any crimes and denies any misconduct. The Fed has said that it would abide by any court decision on Cook’s standing.
Cook’s claim that she was not given the due process needed by the constitution when she was dismissed over a Trump social media post is likely to prevail, according to a split three-judge panel.
For the two-judge majority, Judge Bradley Garcia said, “The government does not dispute that it provided Cook no meaningful notice or opportunity to respond to the allegations against her before this court.” However, he ignored a key question in the case: what “cause” is necessary for a president to remove a Fed governor?
Garcia reasoned that it was not essential to discuss what “for cause” meant at this time since Cook was likely to win her due process claims.
The declining job market worries the Fed.
Investors will remain on edge as the political unrest around the typically stoic and technocratic central bank continues, with the Cook case’s content still unresolved and Trump mulling candidates to succeed Fed Chair Jerome Powell when his tenure ends in May.
In fact, Miran’s handling of the position may provide a clear indication of what the Trump administration has in store for the central bank.
Miran, whose term officially ends on January 31, may have the biggest influence due to how frequently and carefully he speaks in public about monetary policy, the Fed’s operations, the state of the economy, and things he believes should change—even down to a Fed culture he has harshly criticized in previous writings—in the absence of a board majority to approve any significant changes.
Regardless of the events leading up to this week’s policy meeting, the participants’ attention will be elsewhere: on an economy with a job market that is far more precarious than it seemed to be when policymakers last met in late July, and inflation that is still rising above the Fed’s 2% target due in large part to Trump’s aggressive import tariffs.
In order to persuade Fed policymakers to agree to their first rate decrease since December, analysts anticipate that the labor market will be the bigger worry at the table.