The Indicator from Planet Money

Episode•August 27, 2025•9 min

Trump's unprecedented attack on the Fed

Last night, President Donald Trump posted a letter firing Federal Reserve Board Governor Lisa Cook. The reason? She was accused of listing two properties as her primary residences, which potentially gave her more favorable lending terms. This marks another escalation in the president’s battle for control of America’s central bank. We’re publishing our conversation early about whether this is legal, what the Fed might do, and how the Fed’s independence is more fragile than we may think. Related episodes: Should presidents have more of a say in interest rates? (https://www.npr.org/2024/08/14/1197968126/should-presidents-have-more-of-a-say-in-interest-rates) Can the Federal Reserve stay independent? (https://www.npr.org/2025/03/04/1235758702/executive-orders-federal-reserve-doge) It's hard out there for a Fed chair (https://www.npr.org/2025/05/08/1249919772/jerome-powell-fed-reserve-job-security)Patent Racism (https://www.npr.org/2020/06/12/876097416/patent-racism) For sponsor-free episodes of The Indicator from Planet Money, subscribe to Planet Money+ via Apple Podcasts or at plus.npr.org (http://plus.npr.org/). Fact-checking by Sierra Juarez (https://www.npr.org/people/g-s1-26724/sierra-juarez). Music by Drop Electric (https://dropelectric.bandcamp.com/). Find us: TikTok (https://www.tiktok.com/@planetmoney), Instagram (https://www.instagram.com/planetmoney/), Facebook (https://www.facebook.com/planetmoney), Newsletter (https://www.npr.org/newsletter/money). To manage podcast ad preferences, review the links below: See pcm.adswizz.com (https://pcm.adswizz.com) for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences. Learn more about sponsor message choices: podcastchoices.com/adchoices (https://podcastchoices.com/adchoices) NPR Privacy Policy (https://www.npr.org/about-npr/179878450/privacy-policy)

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Transcript

0:01

Npr. This is the indicator from Planet Money. I'm Darian Woods.

0:14

And I'm Waylon Wong. On Monday night, President Trump ratcheted up the pressure on the Federal Reserve. Trump posted a letter on Truth Social firing a governor of the Fed, Lisa Cook. He accused Lisa Cook of potential mortgage fraud.

0:29

Joe Biden appointed Lisa Cook to the Federal Reserve Board of governors in 2022. It's a 14 year term, and Lisa Cook is the first black woman to serve there. The Board of Governors big role is voting on interest rates, which they do alongside some regional Fed presidents. So they are the ones who decide whether borrowing money will be easier or harder.

0:51

So this letter puts the country into extraordinary territory. It politicizes the Fed, which is something we don't really have a precedent for in living mem. The Fed has historically been insulated from politics because it has this all important job of keeping inflation stable and unemployment low. It's supposed to steer the economy based on data.

1:12

Basically, Trump wants the economy revved up right now a lot. And he doesn't consider that'll cause problems like inflation down the road. The vast majority of economists don't share that view that interest rates should dramatically drop. And so Trump needs political loyalists to do that.

1:31

This attempt to fire Lisa Cook raised so many questions for us. We were literally texting each other last night.

1:36

Yeah. So, Waylon, you and I caught up on all the analysis, the frenzied takes coming out of Washington, and we just sat down and had a chat. So we are hitting publish early and after the break, you'll hear our conversation about the wider context and what to look for in the news in coming weeks.

2:03

So here is the state of play. As of Tuesday afternoon, the director of the Federal Housing Finance Agency has accused Lisa Cook of falsifying bank documents and property records when she purchased two properties in 2021. The agency head says she listed both as her primary residences, which potentially gave her more favorable terms from the bank.

2:24

Yeah. So this allegation is what the president cited. On Monday, Lisa Cook responded with a statement saying no cause for firing existed and she wouldn't resign.

2:34

And, you know, we've never really faced a situation like this in the US before. And we are going to chat about what the next few weeks and months could look like. But first we have to go over how we got here.

2:44

How did we get here? So this is the first time we've really seen the President fire a Fed governor. We have seen the Department of Justice under Trump investigating other officials for allegedly the same type of mortgage Fraud, namely New York Attorney General Letitia James and California Senator Adam Schiff. So scrutinizing mortgage applications seems to be a new tool for the Trump administration against political opponents. The Guardian newspaper is calling it Lawfare.

3:14

There have been some famous clashes between presidents and their Fed chairs. So this happened under both Lyndon B. Johnson and Richard Nixon. The closest we've come to the president actually pushing out a Fed official happened in 1951 during the Truman administration. So the president disagreed with then fed chair Thomas McCabe over interest rate policy and how to finance the Korean War. McCabe ended up resigning, and that's a move that commentators now describe as an effective firing.

3:42

And so what's fascinating about that episode is that before McCabe left the Fed, he helped broker something called the Treasury Fed Accord. And that's an agreement that established the norms of Fed independence that the bank and the government have relied on since then.

3:58

Now, of course, there are norms, and then there is the law. So if you look at the text of the Federal Reserve act, it says that members of the Board of Governors serve for 14 years unless removed for cause by the President. And for cause is generally interpreted to mean something like negligence or malfeasance.

4:17

And we've covered on the show how the Fed is one of many agencies that has historically gotten this kind of legal protection. The Federal Trade Commission is another one. And the basic idea is that the president can't fire agency officials on a political whim. There has to be cause.

4:34

Right? And this legal precedent is called Humphrey's Executor. It comes from a 1935 Supreme Court case, and then it resurfaced this year because the Trump administration fired Democratic members of the National Labor Relations Board and the ftc. One of those cases went up the chain to the Supreme Court. And then in May, the Supreme Court ruled that the President can fire agency heads, at least temporarily. But importantly, it had this line in the opinion that kind of said the Fed is special. So legal experts took this as the Supreme Court saying, yes, the president can fire agency heads, but not at the Fed.

5:12

So there's a potential carve out here for the Fed for reasons, reasons, maybe economic expediency. And I expect this will all get furiously debated in the courts. Which brings us to the present. Today, Lisa Cook's lawyer said they will sue Donald Trump's administration. Her lawyer says that his attempt to fire her, based solely on a referral letter lacks any factual or legal basis. Also, the Congressional Black Caucus released a statement saying, quote, this is a racist, misogynistic, and unlawful attack on the integrity and independence of the Federal Reserve. Meanwhile, Commerce Secretary Howard Lutnick told cnbc the real question should be, did she commit mortgage fraud?

5:54

And then in terms of the markets, it was actually kind of a calm day. We saw a slight softening of the dollar, some selling of long term bond, but no, like big financial earthquake.

6:04

And I think part of that, Weylan, was because the future is very hard to predict. And as for what's on the horizon, we are now in a much more politicized, antagonistic era for the Fed.

6:16

Right. Because first there is the legal fight. This is likely to go to the Supreme Court, who will decide if the allegation of mortgage fraud is indeed caused to remove Lisa Cook or if it isn't, whether the President can fire a governor of the Fed without cause. So this will be a real test for a Supreme Court that has mostly sided with the President this year.

6:36

And as the legal fight plays out, it's not entirely clear whether the Federal Reserve keeps Lisa Cook on as an official. Today, the Fed released a statement that kind of split the difference. It said it would abide by any court decision.

6:51

Obviously, we will be watching this closely, especially because the Fed meets on interest rates in mid September and Lisa Cook was set to vote in that meeting.

7:00

Now, I want to broaden the discussion we're having here to the broader political play that this represents for Donald Trump. It's clear he's trying to make as many nominations as he can to the Fed and kind of politicise it in the way that the Supreme Court has become politicised. So why don't we go through the math?

7:19

Yeah. So there are 12 voting members of the Federal Open Market Committee. Seven of them are on the Board of Governors and they are presidential appointees.

7:28

And if Lisa Cook does leave, the president will have a majority of the appointees on the seven member board. But remember, there is five other voting members of the broader committee.

7:39

Yeah. And for these five members, the president does not get to appoint them. They are regional Fed presidents. So if Trump wants to stack the Fed with loyalists, then he has to get creative.

7:49

Yes. I read this report yesterday about how the next cohort of regional Fed presidents will come up for appointment early next year. This report said that the seven member board that Lisa Cooks on, that's who approves the regional Fed presidents. So Trump could pressure his governor appointees to veto regional presidents who aren't aboard the Trump train. And failing that, the border governors can fire regional presidents at will. According to a Justice Department opinion.

8:18

Basically this comes down to what we've been talking about. The Fed's insulation from politics doesn't have strong legal protections. Like it's not like enshrined in this particular way. And with enough perseverance and norm breaking, the president could shape the Fed in his image, which again, we've never seen before.

8:35

We've never seen before in the US And I want to say that the evidence is really strong that when politicians have power over interest rates, inflation tends to go up. You see this around the world. Turkey springs to mind as an example recently where the president hired and fired central bank chiefs based on their loyalty. They had inflation over 80% back in 2022. So in my humble opinion, Donald Trump is really playing with fire.

9:05

This episode was produced by Corey Bridges and engineered by Robert Rodriguez. It was fact checked by Sarah Juarez. Kate Kincannon edits the show and the indicator is a production of NPR.

Trump's unprecedented attack on the Fed

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