Unhedged: "The Fed Under Attack"

Date: August 26, 2025
Host: Katie Martin (FT Markets Columnist, London)
Guest: Claire Jones (FT Fed Correspondent, Washington D.C.)

Episode Overview

This episode dissects the unprecedented escalation of political pressure on the U.S. Federal Reserve, centered on President Donald Trump's announcement that he had "fired" Fed Governor Lisa Cook amid unproven allegations of mortgage fraud. Katie Martin and Claire Jones break down who Lisa Cook is, detail the allegations and response, analyze both the legal and financial implications, and explore why such attacks on central bank independence are so concerning for markets and global economic stability.

Key Discussion Points & Insights

1. Who is Lisa Cook?

• Lisa Cook: One of the seven Federal Reserve governors, a Biden nominee confirmed in 2022, and the first Black woman to serve on the Fed's board ([03:29]).
• Known as a consensus voter with Chair Jay Powell; respected academic background.

"Her appointment was also seen as significant at time and heralded at the time because she's the first black woman to sit on the board of governors of the Fed."
— Claire Jones (03:29)

2. The Allegations and the Political Context

• Triggering Allegations: Bill Pulte, Trump’s Federal Housing Director and outspoken Fed critic, alleged Cook had committed mortgage fraud in 2021 relating to declarations of primary residence on two property purchases ([04:49]).
• Cook promptly refused to resign, vowing to answer claims and provide documentation in due course.
• The allegations surfaced just before the prestigious Jackson Hole central banking symposium, casting a shadow over the event ([06:30]).

"There was a series of posts on X by Bill Pulte... the thrust of which was a letter... saying that he'd found evidence that Lisa Cook had committed mortgage fraud."
— Claire Jones (04:49)

3. Trump’s Drastic Response

• Trump abruptly announced Cook’s supposed firing on social media, bypassing any due process ([08:27]).
• Legal experts and most observers immediately questioned whether the President has the authority to fire a Fed governor absent proven “gross malfeasance,” a standard rarely invoked and virtually untested in court ([10:55]).

"It's very hard to fire a member of the Fed's Board of Governors. There's a whole body of US Law that protects Federal Reserve officials from being fired. The bar to fire them is really, really quite high."
— Claire Jones (10:07)

4. Implications for Central Bank Independence

• The attack is seen less as an isolated legal matter and more as part of a widening Trump campaign against economic institutions resisting direct Executive control ([11:37]).
• Similar actions have targeted the Bureau of Labor Statistics and university economics departments.
• The episode evokes comparisons to countries with weaker democracy and central banking practices, notably Turkey, where presidential interference has eroded credibility and raised borrowing costs ([13:13]).

"[Paul Krugman] was saying... 'If Powell caves... or the Supreme Court acts supine again and validates Trump's illegal declaration, the implications will be profound and disastrous. The US will be well on its way to becoming Turkey, where an authoritarian ruler imposed his crackpot economics on the central bank.'"
— Katie Martin quoting Paul Krugman (13:13)

5. Market Reaction & Risk Assessment

• Surprisingly, short-term market reaction muted; government bond prices suggest traders expect rate cuts soon, possibly due to political pressure.
• However, longer-term borrowing costs are rising, reflecting concern that Fed independence—and thus inflation-fighting credibility—could be eroded ([16:11]).

"...Short term government bonds are gaining in price, which is the market's way of saying, we do think that interest rate cuts are coming pretty soon, but long term interest rates, long term borrowing costs are rising. And that is exactly to your point, the market's way of saying, over the long run, we think there might be enough political interference..."
— Katie Martin (16:11)

6. What Happens Next?

• Cook has retained independent legal counsel and is expected to seek a court injunction allowing her to remain in office during legal proceedings ([17:24]).
• The dispute could escalate to the Supreme Court, becoming a landmark test of executive power over independent regulatory institutions.

"We anticipate what that legal counsel is going to do is file... an injunction at the local district court, which would basically, if it was successful, enable Cook to return to work and serve on the Fed while the legal proceedings are ongoing."
— Claire Jones (17:24)

Notable Quotes & Memorable Moments

• On Trump’s motives:

  "He's seen an institution that he doesn't directly control and that isn't doing exactly what he wants. And he appears to be saying, yeah, this won't stand. I want what I want, and I'm determined to get it."
  — Katie Martin (10:55)

• On potential consequences:

  "If you attack the Fed to the point where it loses credibility, then you risk the opposite. ...Where he thinks by attacking the Fed, he'll get lower interest rates. Well, he might in the short term, but in the longer term, there's going to be hell to pay."
  — Claire Jones (14:55)

• Market summary:

  "Probably the best thing for him to do in terms of achieving the results that he wants is just to leave the institution alone. But... he appears to be incapable of doing that."
  — Katie Martin (16:11)

• Claire’s sign-off before a fire alarm interruption:

  "There's a high chance here that it looks as though it'll end up in the Supreme Court and really be very, a very, very interesting, historically unprecedented case as to just how much power the executive branch in the US Has. Oh, sorry. Just. I think they're testing the fire alarm."
  — Claire Jones (19:09)

Timestamps for Key Segments

• Lisa Cook's bio and significance: [03:00]–[03:40]
• Allegations explained: [04:49]–[06:10]
• Jackson Hole & atmosphere: [06:30]–[07:56]
• Trump's firing announcement: [08:27]–[09:50]
• Legal/constitutional background: [10:55]–[11:37]
• Krugman quote & the Turkey comparison: [13:13]–[14:55]
• Market reaction explained: [16:11]–[16:58]
• Next legal steps and speculation: [17:24]–[19:09]

Summary Table

| Segment | Topic | Key Moments/Timestamps | |------------------------------|-----------------------------------------|------------------------------| | Lisa Cook Intro | Background, why significant | [03:00]–[03:40] | | Allegations | Mortgage fraud details, context | [04:49]–[06:10] | | Jackson Hole | Event ambiance & impact | [06:30]–[07:56] | | Trump’s Announcement | Can he fire a governor? | [08:27]–[09:50] | | Legal Authority/Process | Laws on firing Fed officials | [10:55]–[11:37] | | Dangers of Precedent | Turkey analogy, Krugman quote | [13:13]–[14:55] | | Market Impact | Bonds, rates, investor reaction | [16:11]–[16:58] | | What’s Next | Injunction, Supreme Court potential | [17:24]–[19:09] |

Tone and Takeaways

• The hosts balance grave concern with wry, lightly sardonic British humor, emphasizing the absurdity and seriousness of the current moment.
• The episode repeatedly stresses how rare and dangerous such an assault on the Fed’s independence is in a developed democracy.
• Concluding, Katie Martin expresses a wistful appreciation for "analysis, decency, the rule of law, all that sort of thing" ([20:02]), highlighting the stakes not just for finance professionals but for democratic institutions at large.

This summary distills the major insights and contours of the discussion, providing timestamps, notable quotes, and a clear flow for listeners seeking to understand this pivotal moment for U.S. financial governance.