John Law (9:47)
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If the Fed is even seen as doing the president's bidding, the repercussions will almost certainly be the opposite of what he wants. Longer term treasury bond yields, the benchmark for interest rates throughout the economy, will increase as investors worry that a weakened central bank will fail to contain inflation. In one signal, the Yield on the 30 year bond ticked up several basis points after the president moved to fire Cook. As of last week, markets still appear to believe in the Fed's independence. When Powell suggested at the Jackson Hole Economic Policy Symposium that a rate reduction could be coming in September, treasury yields declined significantly at all maturities, indicating confidence that the central bank remained in control, the board said. Hence, there's still a chance that despite complications introduced by misguided trade and fiscal policies, the central bank might achieve a soft landing in which it gets inflation down to its 2% target without causing a recession. In his substack, Paul Krugman wrote, trump's attempt to fire a Fed governor is illegal. Now we find out whether that matters. At this point, the immediate onus is on Jerome Powell, the Fed chairman. He has the right, I would say the obligation to say show me the legal basis for this action. If Trump's officials can't provide that basis, he should declare that as far as he is concerned, Cook is still a Fed, governor, krugman said. If Powell caves or the Supreme Court acts supine again and validates Trump's illegal declaration, the implications would be profound and disastrous. The United States will be well on its way to becoming Turkey, where an authority ruler imposed his crackpot economics on the central bank, sending inflation soaring to 80%. Even if true, the allegations against Cook wouldn't meet the standard for immediate dismissal from the Fed, krugman wrote. But of course, Trump's attempt to fire Cook has nothing to do with allegations of fraud. Her real crime, in his mind, is that she isn't an obedient minion. Oh, and that she's a black woman. The goal of his attempt to fire her is to replace independent Fed officials with lackeys who will take Trump's orders not just by getting rid of Cook, but by intimidating everyone else. Alright, that is it for what the left is saying. Which brings us to what the right is saying. The right is mixed on the move, with some saying that allegations against Cook are grounds for removal if proven. Others argue Trump's attempt to influence the Fed is no different than Democrats attempts to pack the Supreme Court in Red State. The blogger Bonci explored the criminal referral against Cook. Some experts have tried to claim that Cook's situation does not fall under the guise of cause when it comes to the authority of the president to remove Federal Reserve governors. But while the protections against removal afforded by the Bank act of 1935 appear to extend to policy decisions, as in a governor can't be fired for not lowering interest rates, the idea that personal misconduct doesn't qualify belabors believe Bonchi said such a position would presume that a president can't fire someone who allegedly committed fraud that stretches whatever protections exist far past the point of absurdity. Still, it likely won't be difficult for Cook to find a lower court judge to agree with her if she chooses to contest this. It's a legal battle she could very well lose in the end, though, which begs the question of whether it's smart to poke the bear. Her firing doesn't change the fact that she's under criminal investigation. She antagonizing the administration by suing over her removal won't do her any favors in the Hill. Merrill Matthews said Fed packing is no better than court packing Last year, Democrats and their media mouthpieces engaged in a steady months long stream of accusations of wrongdoing by certain conservative Supreme Court justices. Democrats wanted to pressure those justices to resign or even impeach them, matthews wrote. Now it appears that the scenario has flipped. President Trump and some in his administration are trying to do something similar only to the federal Reserv bank governors Court packing was wrong when Dems tried to do it, and Fed packing is wrong when Republicans try to do it. Even if Trump succeeds in firing Cook, it might not change the Fed's interest rate decisions. The Federal Open Market Committee that handles Fed policy decisions has changed its decision making process over the years, but the modern structure has 12 voting positions comprising the seven members of the Board of Governors and five of the 12 Federal Reserve bank presidents. Matthews said it's hard to see Trump's smear campaign as anything more than a desperate effort to gain control over the Federal Reserve bank and its policymaking process, which is exactly what the Fed's enabling legislation was intended to prevent. Alright, that is it for what the left and the right are saying. Which brings us to what financial writers are saying. Many financial writers express concern about how Cook's attempted firing will impact Fed independence. Some note the muted market reaction suggesting this move is not the five alarm fire some are making it out to be. The Financial Times editorial board argued Trump's intensifying assault on central bank independents risks backfiring. The assumption that the Fed will set rates based on its own economic judgments has been dealt a severe blow by Trump's determination to undermine it by undermining the central bank's credibility. He risks making the economic situation worse, the board wrote. Even if Cook is found guilty of falsifying mortgage statements, it is unclear if the courts will deem that sufficient for her to be fired. But if they did, it could erase any notion that the Fed is independent. In the interim, investors are increasingly pricing in the possibility of a captured Fed Following Trump's announcement on Cook, 30 year bond yields, which have remained uncomfortably elevated in the president's second term, nudged higher. The dollar weakened further too, the board said. These market moves are ultimately counterproductive for the president. Higher long term bond yields push up mortgage rates and public borrowing costs. A weak dollar adds to imported price pressures. If households and businesses expect the president will relentlessly undermine the Fed to get rates down, their inflation expectations may increase. That raises the chances of tariff related price increases becoming entrenched. In his post on X, Justin Slaughter, the vice president of regulatory affairs at Paradigm, shared his thoughts on the attempted firing. The Cook attempted firing will be litigated quickly, but not as quickly as folks seem to think. This process will take a few weeks even to wind its way to the Supreme Court. On whether the firing will be stayed pending litigation, Cook's vote for September's rate meeting will likely not be officially counted, slaughter wrote. Any message that this attempted firing is illegitimate isn't breaking through outside of academic democratic circles talking to a few traitors. Cook claiming two residences as primaries reads as an actual reason to relieve her for cause. The idea this action is beyond the pale just isn't the baseline take this act is a step towards the end of Fed independence, but not yet regarded as the main event. Meanwhile, there's no other global market as good as America even now. In fact, the dollar dropping even with the bond yields rising is probably going to help the Trump administration's goal of a somewhat weaker dollar, slaughter said. More than anything else so far, this fight over the Fed independence is the Dem's best chance to effect a rapprochement with the business community, but so far they're blowing it all. The messaging targeted at businesses seems to either be scolding the markets for not selling off more, or suggesting this attempted firing is neoliberalism. It speaks to the degree to which Dems have lost the muscle memory to engage with the private sector at all. Alright, let's head over to Isaac for his take.
