Firing Lisa Cook Won’t Bring Down Interest Rates

The White House might finally get some of what it’s been demanding from the US Federal Reserve: Chair Jerome Powell has signaled that the central bank could lower interest rates at its next policy-making meeting in September. The president had better be careful, lest anyone think it’s actually his doing.

Under normal circumstances, the executive branch should love having an independent Fed — that is, one with the power to set rates as it deems necessary to fulfill its congressional mandate of controlling inflation and promoting employment. From an economic perspective, granting central banks such autonomy has proven very successful, which is why countries almost everywhere do it. From a political perspective, the president can criticize monetary policy all he wants without taking responsibility for the outcome. He’ll gain if things go well, and will have someone to blame if they don’t.

Nonetheless, the current administration seems intent on forcing the Fed to lower rates. In a marked escalation this week, the president moved to oust a Fed governor, Lisa Cook, for allegedly providing false information on one or more mortgage applications. This follows months of attacks on Powell, including on specious grounds of mismanaging the renovation of the central bank’s headquarters. Although plenty of presidents have sought to bully Fed officials, this administration is taking it to a new level.

The pressure isn’t likely to make much of a difference in the Fed’s rate decisions anytime soon. Both Powell and Cook — whose terms as chair and governor extend to May 2026 and January 2038, respectively — enjoy strong job protections. They’ve said they have no intention of stepping down. The policy-making Federal Open Market Committee has 19 members, most of whom place responsible economic management above short-term political considerations — and no more than a few of whom the president will likely have a chance to replace during his current term. They’re broadly in agreement that rates should be going down as soon as conditions allow.

Yet perceptions matter. 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. Restoring confidence might ultimately require the Fed to push short-term interest rates higher than it otherwise would, potentially at the cost of a recession.

As of last week, markets still appeared 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. 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.

Now more than ever, it’s in the president’s interests not to upset this delicate process. The more he meddles, the greater the chance that things will go awry just when he’s about to get what he wants.

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