The Federal Reserve Under Siege

Summary

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The Journal. – “The Federal Reserve Under Siege”

Date: August 26, 2025
Hosts: Jessica Mendoza & Matt Grossman
Podcast: A co-production of The Wall Street Journal & Spotify Studios

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Episode Overview

This episode explores the escalating confrontation between President Donald Trump and the U.S. Federal Reserve, focusing on Trump’s surprising move to fire Fed Governor Lisa Cook. The hosts discuss the unprecedented nature of these events, what’s at stake for the independence of America’s central bank, and the potential future of U.S. monetary policy.

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Key Discussion Points & Insights

1. Trump’s Unprecedented Move: Firing a Fed Governor

• At 8:00 p.m. in Washington D.C., Trump announced via social media a letter firing Lisa Cook, a member of the Fed’s Board of Governors ([00:05–00:29]).
• This move breaks with over a century of tradition; no president has ever attempted to fire a Fed Chair or a Governor before ([01:24–01:36]).
• Quote:

  “In all those years, a president has never tried to fire the chair of the Federal Reserve or, or any of its governors. And it really puts us into uncharted territory.”
  — Matt Grossman ([01:24])

Why This Matters

• The Fed’s independence is a cornerstone of stable economic policy. The friction raises questions about whether the central bank can remain insulated from political interference ([01:40–01:55]).
• Quote:

  “It really raises the question of whether this powerful and absolutely central economic regulator... is going to remain independent.”
  — Matt Grossman ([01:40])

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2. Background: The Role of the Fed & Lisa Cook

• Lisa Cook: Academic economist, first Black woman appointed as a Fed governor, nominated by President Biden in 2022 ([04:02–04:24]).
• Board of Governors: Washington-based decision-makers, including the Fed Chair, who set interest rates to balance economic growth and inflation ([04:39–05:17]).
• Interest rate decisions affect everything from mortgages to business loans and overall economic activity ([05:17–06:05]).
  • Low rates spur growth but risk fueling inflation.
  • Raising rates can cool inflation, but may slow the economy.

Recent Policy Context

• Under Biden, the Fed fought inflation by raising rates; inflation cooled, and recently cuts began. Trump now wants rates lowered more aggressively ([06:05–06:30], [06:30–07:01]).
• Trump seeks alignment between Fed policy and his economic agenda.

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3. Trump’s Pressure Campaign on the Fed

• Trump has been critical of Fed Chair Jerome Powell and the Fed’s rate decisions ([07:01–07:49]).
• He also spotlighted expensive Fed building renovations, using this as ammo to critique Powell ([07:49–08:40]).
  • Quote:

    “In July, he became really interested in a construction project... President Trump seized on this project as an example of mismanagement.”
    — Matt Grossman ([07:49])

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4. The Accusation Against Lisa Cook

• Trump’s focus shifted to Lisa Cook after a Trump-allied official, Bill Pulte (head of the FHFA), alleged mortgage fraud against her on social media ([08:40–09:16]).

  • Accusation: Cook, in 2021, claimed two different properties in two states as primary residences to gain better mortgage rates.
  • Evidence is scant; Cook’s signature appears in shared images, but little else backs up the claim.

• This set off a chain involving the DOJ and led Trump to declare Cook’s firing ([09:16–09:57]).

  • Quote:

    “We’ve now seen evidence that... she has committed what he alleges is mortgage fraud, and, and, you know, we’re going to dismiss her over that.”
    — Matt Grossman ([09:16])

Cook’s Response

• Cook states the application predated her Fed service and is hiring legal representation, asserting Trump lacks authority to fire her ([09:57]).
• The Fed itself says governors can only be removed “for cause” and commits to following court rulings.

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5. What’s at Stake: The Future of the Fed’s Independence

• Removing Cook would let Trump further reshape the Board toward his preferred policies ([09:57–11:39]).
• Already, with another Biden appointee’s recent resignation and a new Trump nominee pending, Trump could soon have significant influence ([11:39–12:16]).
• The Fed Chair term is up for renewal in eight months—Trump could pick Powell’s successor ([12:16–12:45]).
  • Quote:

    “It would be a really seismic shift in the makeup of the board, especially because in about eight months from now, the President’s going to have the chance to pick Jerome Powell’s successor as Fed Chair.”
    — Matt Grossman ([12:18])

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6. Powell’s Bind: Policy Amid Political Pressure

• Upcoming Fed decision on rates looms large; Powell recently hinted at a possible cut ([12:45–13:08]).
• With Trump’s public pressure, Powell must try to demonstrate independence, making decisions for economic—not political—reasons ([13:08–13:39]).
  • Quote:

    “It sort of makes it incumbent upon him to make what he sees as the most rational independent calls that he can. Not because they’re the ones the President wants... but because they’re in the best interest of the economy.”
    — Matt Grossman ([13:10])

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7. The Core Conflict: Politicization of the Fed

• The Fed’s credibility relies on being above the political fray—presidents have always wanted low rates, but the recent escalation is unprecedented ([13:39–14:42]).

  • Quote:

    “It’s a new paradigm for the Fed... It really degrades the trust that people have in the institution to be above that short term political fray.”
    — Matt Grossman ([14:55])

• If the White House dominates the Fed, the central bank’s ability to act independently could be quickly undermined.

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Notable Quotes & Memorable Moments

• On Unprecedented Territory:

  “In all those years, a president has never tried to fire the chair of the Federal Reserve or, or any of its governors.”
  — Matt Grossman ([01:24])

• On Political Pressure:

  “It really raises the question of whether this powerful and absolutely central economic regulator... is going to remain independent.”
  — Matt Grossman ([01:40])

• On Powell's Dilemma:

  “It really puts Powell in a bind because everyone knows he's under this immense pressure from the White House.”
  — Matt Grossman ([13:10])

• On the Fed’s Core Role:

  “Striking a balance between those two is really the Fed’s mission.”
  — Matt Grossman ([05:17])

• Summary Warning:

  “If this is an institution that comes under the sway of the White House, that really has the potential to, to degrade very quickly.”
  — Matt Grossman ([14:55])

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Important Timestamps

• 00:05 — Trump’s letter firing Lisa Cook
• 01:24 — Historical context: no president has fired a Fed Governor or Chair
• 06:05 — How and why the Fed has made unpopular decisions
• 08:40 — Emergence of allegations against Lisa Cook
• 09:57 — Cook’s legal response and the Fed’s statement on removal
• 11:39 — Potential for Trump to appoint more governors, shift Board’s makeup
• 12:45 — Upcoming Fed rate decision and Powell’s position
• 13:08 — Powell’s statement under pressure
• 14:55 — Matt Grossman on the threat to the Fed’s credibility

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Tone & Style

The discussion is urgent, analytical, and steeped in the gravity of the ongoing political battle. The hosts maintain a measured, explanatory style that foregrounds both economic facts and their historical and political context.

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Conclusion

This episode lays bare the stakes of Trump’s unprecedented actions regarding the Federal Reserve: the future independence of the central bank, the possibility of a political realignment at the Fed, and the risks to economic stability posed by undermining public trust in monetary policy. Whether Lisa Cook’s removal stands—and who may lead the Fed next—has profound implications for both markets and the American public.

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Transcript

[Jessica Mendoza]

Last night, just after 8 o' clock in Washington, D.C. president Donald Trump posted a letter on his social media feed.

[Matt Grossman]

And you click into the image and you read that he has decided to fire Lisa Cook, who is one of the seven members of the Board of Governors at the Federal Reserve.

[Jessica Mendoza]

And what did that letter say? Do you have it up?

[Matt Grossman]

Yeah, it's a letter on White house letterhead dated August 25. It says, Dear Governor Cook, pursuant to my Authority under Article 2 of the Constitution of the United States and the Federal Reserve act of 1913, as amended, you are hereby removed from your position on the Board of Governors of the Federal Reserve, effective immediately.

[Jessica Mendoza]

That letter is the latest turn in what's been an escalating battle between Trump and America's central bank, the Federal Reserve. The President is considering firing Federal Reserve Chairman Jerome Powell. Trump has again been pushing Fed chair Jerome Powell to lower interest rates, ramping up that pressure by publicly examining costly renovations the Fed is making.

[Matt Grossman]

President Trump escalated his attacks on Federal.

[Jessica Mendoza]

Reserve Chair Jerome Powell.

[Matt Grossman]

The Fed was created just over 100 years ago.

[Jessica Mendoza]

Our colleague Matt Grossman covers economics.

[Matt Grossman]

And in all those years, a president has never tried to fire the chair of the Federal Reserve or, or any of its governors. And it really puts us into uncharted territory.

[Jessica Mendoza]

Why does that matter? What's the heart of the issue here?

[Matt Grossman]

It really raises the question of whether this powerful and absolutely central economic regulator, which is a really unique institution in the United States, is going to remain independent.

[Jessica Mendoza]

Welcome to the Journal, our show about money, business and power. I'm Jessica Mendoza. It's Tuesday, August 26th. Coming up on the show, Trump's unprecedented power play at the Fed.

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[Jessica Mendoza]

So who is this person that the president says he's firing? Who is Lisa Cook?

[Matt Grossman]

Sure. So, like many of the officials who serve on the Fed's Board of Governors and throughout the Fed system, Cook is an academic economist, and she's only served on the Fed board for a few years now. The US Economy is still on a firm footing, but uncertainty has notably increased since the beginning of the year.

[Jessica Mendoza]

Cook was nominated to the board of the Federal Reserve by then President Joe Biden in 2022. She's the first black woman to serve as a Fed governor. Let's back up a little here. What even is a Federal Reserve governor?

[Matt Grossman]

As part of the Fed's independence, Congress set up a delicate balance where decisions about interest rates in the country would made, on the one hand by officials who are scattered across the country. Those are the presidents of the Fed's regional reserve banks. They're in cities like New York, Chicago, San Francisco, Kansas City, and a group of governors who are based in Washington.

[Jessica Mendoza]

That group is led by Fed Chair Jerome Powell. The Fed runs the internal plumbing of the US Financial system, and most notably, it votes on whether to lower or raise interest rates in the short term.

[Matt Grossman]

It's often a great boost to the economy to have low interest rates. Low interest rates mean that it's cheap to borrow. So if you're a homeowner, it's easier to get a mortgage. And if you're a business looking to make an investment, borrowing the money that you need to do that is going to be cheaper. So it encourages a lot of economic activity. The downside is that over time, an environment like that, where there's a lot of spending and the economy's heating up can often coincide with inflation. And real people suffer. They see prices going up at the grocery store. They see more expensive prices for airfares and hotels and education and everything else. And striking a balance between those two is really the Fed's mission.

[Jessica Mendoza]

The ability to make potentially unpopular decisions like raising rates is crucial to achieving that mission. Early in the Biden presidency, inflation was a big problem. So the Fed aggressively raised interest rates until about a year ago, when inflation had cooled enough for the Fed to start cutting rates. Now Trump has made it clear that he wants the Fed to cut rates further.

[Matt Grossman]

We want to see interest rates come down. Our country is booming. He came into office saying, you know, we're going to have a great economic revival. And, you know, I have come in and really cleaned up a lot of the inflation that we saw under the Biden administration. And in fact, inflation's quite a bit lower, although not all the way back to the Fed's target. And going along with that should be a low interest rate policy that works with my administration and isn't leaning against the economy.

[Jessica Mendoza]

So why hasn't Fed Chair Jerome Powell cut rates yet?

[Matt Grossman]

It's been a really tough call for them this year. The tariffs that President Trump has implemented introduced a lot of anxiety about inflation because, you know, they could disrupt supply chains. And Fed officials have been really cautious about reducing interest rates before it's clear how much tariffs are going to revive some of the inflation we saw over the past few years.

[Jessica Mendoza]

The fact that the Fed hasn't cut rates yet has frustrated Trump. He sees high interest rates as a drag on the economy and on his administration's priorities. For months, the President has signaled that he wants to remove Powell as chair. Powell's four year term as Fed Chair is supposed to continue through May of next year.

[Matt Grossman]

It's been quite a multi pronged attack from the White House. To start, there's been just an endless stream of criticism about how Powell has managed interest rates. More recently, President Trump has found other reasons to criticize the Fed. In July, he became really interested in a construction project that the Fed is doing at its headquarters in Washington. And President Trump seized on this project as an example of mismanagement. It's a tough construction job, building basements where they didn't exist or expanding them, and lot of very expensive work. There's no question about it. And that, you know, this was a sign that Jerome Powell, you know, isn't able to manage the institution. Well, setting aside the policy decisions in the past few weeks, Trump has sort of moved on from that.

[Jessica Mendoza]

Instead, Trump has focused on Lisa Cook. It started last week with a Trump ally who serves as the head of the Federal Housing Finance Agency, a man named Bill Pulte. Pulte alleged on social Media that in 2021, Cook submitted what he called fraudulent information on a pair of mortgage applications. He said that Cook described two different properties in two separate states as her primary residences. The filing could have given her a better mortgage rate. Pulte's post included images of what appear to be Cook's signature, but not any other evidence backing his accusation.

[Matt Grossman]

So that sort of kicked off this chain of investigations that have ricocheted from Bill Pulte at the FHFA to the Justice Department, where, you know, he says that he referred Cook for a criminal complaint that, you know, has now culminated with with Trump saying, you know, we've now seen evidence that, you know, she has committed what he alleges is mortgage fraud and, and, you know, we're going to dismiss her over that. Cook says that she believes that the dismissal is unjust and illegal and that she plans to stay in the position and pursue legal avenues to do that.

[Jessica Mendoza]

In a statement, Cook noted that the application was filed four years ago before she joined the Fed. She has since hired an attorney and says she intends to remain in her job and that Trump has no authority to fire her. A Federal Reserve spokesperson said that Fed governors, quote, may be removed by the president only for cause. The spokesperson added that removal protections are in the interests of the American people and noted that the Fed will abide by any court decision. If Trump is successful in ousting Lisa Cook, he'll have an opportunity to reshape the Fed and the future of monetary policy. That's next.

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[Jessica Mendoza]

Of the seven Fed governors, two of them were appointed by Trump in his first term. Both voted against the committee's decision last month to hold rates steady, arguing for a cut instead. Now there's potentially room for more Fed governors who could align With Trump, there's.

[Matt Grossman]

Already a vacancy when another Biden appointed governor resigned earlier this month. So he has her seat to fill. And he's nominated a close advisor, Stephen Myron, to take that job. And now, depending on how this legal case plays out, he may or may not have another opening, too.

[Jessica Mendoza]

And if it all goes Trump's way.

[Matt Grossman]

Well, it would be a really seismic shift in the makeup of the board, especially because in about eight months from now, the President's going to have the chance to pick Jerome Powell's successor as Fed Chair, which is a very influential post. It's likely that Trump is thinking about that Fed chair opening and also who might be the right person to succeed Lisa Cook if the legal removal is successful.

[Jessica Mendoza]

All of this puts Powell in an awkward situation at an awkward time. Americans are waiting for the Fed to make a decision next month on interest rates. Just last week, Powell hinted at a possible forthcoming rate cut.

[Matt Grossman]

Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.

[Jessica Mendoza]

Now, with politics looming over every decision.

[Matt Grossman]

He makes, it really puts Powell in a bind because everyone knows he's under this immense pressure from the White House. And it sort of makes it incumbent upon him to make what he sees as the most rational independent calls that he can. Not because they're the ones the President wants us to make, but because they're in the best interest of the economy.

[Jessica Mendoza]

This kind of speculation about whether the Fed's decision might be influenced by politics, that's the very reason the agency was set up the way it is. It was supposed to avoid even the perception of political pressure.

[Matt Grossman]

When the Fed really insists that it's just calling balls and strikes, it is just taking the data that come out about how the labor market's doing, how inflation is doing, and, you know, making the best calls that it can. And it's something that Fed Chair Jerome Powell is very careful to say almost any time he steps in front of a microphone, that we are doing this work with the best interest of the American people in mind, thinking about how it affects their, their day to day lives. And I think that the Fed voters who have backed this wait and see approach so far this year would say that they just so far have not been comfortable with the inflation outlook, in part because of the tariffs that we've seen and just the immense uncertainty about how those will play out.

[Jessica Mendoza]

You said that presidents have always wanted to keep interest rates low. And presidents have also had nominating power of Fed governors and Fed chairs. So what is it that Trump's doing that is different.

[Matt Grossman]

It's a new paradigm for the Fed to make a decision, one that maybe cuts against the president's interests, and he embarks on a process to say, you know what, I want someone else on the Fed board who's actually going to do what I want. It really degrades the trust that people have in the institution to be above that short term political fray. And if this is an institution that comes under the sway of the White House, that really has the potential to, to degrade very quickly.

[Jessica Mendoza]

That's all for today. Tuesday, August 26th. The Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode from Greg ip, Alex Leary, and Brian Schwartz. Thanks for listening. See you tomorrow.