The Fight for the Reserve: Why Trump wants a Revolution at the Fed
Donald Trump is increasing pressure on the Federal Reserve System by attempting to fire one of its governors, Lisa Cook. The US president is extremely unhappy with the behavior of America's main financial regulator and is trying to fill the board of governors with loyal people. What claims Trump has against the Fed and why he is trying to put this organization, which is formally independent of the government, under control is in the Izvestia article.
Friendship didn't work out
The current head of the White House did not have a good relationship with Fed Chairman Jerome Powell from the very beginning, although it was he who appointed him to the post during his first term. The first conflict arose already in 2019, of course, because of the level of betting. The sluggish confrontation continued after Trump's defeat in the 2020 election, resuming with renewed vigor in 2025, when the politician returned to the Oval Office. Trump dubbed the head of the Fed "Mr. Too Late," hinting at the regulator's slow reaction to the changing economic environment.
Chairman of the US Federal Reserve Jerome Powell
The harsh criticism is explained, among other things, by the fact that Trump cannot just dismiss the head of the Fed. Theoretically, this is possible, according to the Federal Reserve Act. However, it requires a clear and unequivocal violation on the part of the head of the regulator. Dismissal is not allowed due to a discrepancy in views on monetary policy. If this happens, it will happen for the first time in the 112-year history of the institute. Dismissal for no obvious reason is likely to cause panic in the markets and multiple lawsuits. In addition, Powell's role in the formation of the DKP, although significant, is not exclusive: the decision to lower rates is made by the Open market committee, which consists of 12 members of the Fed board.
The administration began to "dig" under Powell a few months ago, launching an investigation into the renovation of the Federal Reserve building in Washington, which cost $ 2.5 billion. In theory, if any violations are confirmed, Trump will indeed be able to fire Powell before the expiration of the latter's term of office (May 2026). But while the prospects for an investigation are not obvious, the administration has decided to take on simpler tasks.
A few days ago, it became known about real estate fraud carried out by one of the members of the Fed board, Lisa Cook. Cook listed her two homes in Georgia and Michigan as her main ones, although she did not live in them. This false information was used to obtain a mortgage loan. The violation is, on the one hand, a minor one, on the other, giving a formal reason to dismiss Cook from office. Cook herself does not agree with this and has already appealed to the court to block all Trump's efforts to dismiss her. The case in the history of the Fed is unprecedented. It should be noted that Cook, in principle, does not deny his misconduct, but at the same time insists that the president cannot simply dismiss her in any case.
The Federal Reserve Building in Washington
For Trump, this is a move that changes the balance of power in the country's main regulator. Of the seven members of the Fed's board, two have already been appointed by him. The third, Stephen Miran, is currently undergoing congressional approval. If Trump can get the fourth position, then his supporters will get a majority on the board. There are five more people on the open market operations committee (the head of the Federal Reserve Bank of New York on a permanent basis and the directors of four other reserve banks that together make up the Fed itself), but superiority on the board can be decisive in decision-making (they do not require full consensus, but open statements against strong groups bankers are quite rare). In fact, this is an opportunity to pursue a monetary policy that is convenient for oneself.
Traditions of control
The Federal Reserve system boasts a certain independence from political authorities within the framework of the notorious "checks and balances". Moreover, it was the Fed that became the model of a properly functioning Central Bank for many countries of the world, protected from direct government interference. The Central Bank, according to modern concepts taken from the American model, is a technocratic institution that must pursue monetary policy regardless of the opinion of the executive or legislative authorities. But that wasn't always the case.
During the Second World War, the Fed performed a completely different function. In fact, at that time, her main responsibility was to support the government debt market. The fact is that the war required enormous borrowing, and the debt-to-GDP ratio had already exceeded 100% by 1944. Therefore, the main task of the Federal Reserve was to maintain low interest rates in the economy, since there was no way to pay off such a huge debt at market levels of profitability. At first, the conversion and surplus of workers released after the reduction of the military-industrial complex in 1945 made it possible to ensure growth, moderate inflation, and debt repayment. Everything changed after the outbreak of the Korean War. By February 1951, inflation had reached 21%. Fed governors have actively spoken out against soft monetary policy and debt monetization.
Then US President Harry Truman called the entire board of directors of the Federal Reserve to the carpet and demanded support in the administration's financial and budgetary endeavors. Following the meeting, the Fed agreed to keep rates low for as long as necessary. As a result of the scandal, Thomas McCabe, then chairman of the Federal Reserve, was forced to resign due to pressure. Nevertheless, agreements were reached under which the Federal Reserve agreed to keep rates low for some time, but in the longer term it gained independence, which it still enjoys. The regulator was headed by Deputy Treasury Secretary William Martin, appointed by Truman. Interestingly, he eventually set a record for the length of his term, which has not yet been broken — 19 years. In 1965, Martin withstood pressure from President Lyndon Johnson, who demanded lower rates in order to finance the American war in Vietnam, and Johnson literally shoved him around the room at his ranch in Texas, trying to physically influence him with phrases like "You're not printing the money we need while our guys are dying."
Financial emergency
In this way, the current situation may to some extent return to the state of affairs observed before 1951. Trump insists there is an "economic emergency," just like during the war. An additional trump card can be given to him by appointing his own man, Kevin Warsh, to the post of Fed chairman after Powell leaves. This is a very important issue for the administration. Trump wants the Fed to cut rates. The fact is that now the base rate (Federal funds rate) is at a high level — 4.25–4.5%, and in real terms (minus inflation) — more than 2%. This is a lot by the standards of the last 20 years, when the base rate was mostly negative.
Although a low rate means supporting economic growth and high employment, the issue of public debt may even be more important for Trump and his administration. The new laws significantly reduce taxes and reduce potential budget revenues. The duties partially compensate for the shortfall in revenue, but not completely. Meanwhile, debt volumes are growing by leaps and bounds. Refinancing at a high rate (currently the yield on 10-year bonds is 4.2%) means creating a vicious circle with a constant increase in borrowing. The American administration needs a moderate rate to achieve its objectives. It is no coincidence that Trump reacted so sharply to the publication of statistics on jobs, which revised down the results over the past few months. The President fired the director of the Bureau of Labor Statistics, because from his point of view, the previous results signaled a very solid position in the economy and influenced the decision to leave the rate unchanged.
The Trump team's hope to increase its influence at the Fed to full control could be dangerous. There are more than enough examples when the Central Bank acted based on the current situation for the authorities, and usually it did not end well. However, Warsh believes that a reduction in interest rates can be offset by a reduction in the quantitative easing program, which will lead to zero effect in terms of money supply, but will ensure a more even distribution of credit liquidity across the economy. The issue is of fundamental importance not only for the United States: many developing countries can attract much more funds in conditions of low interest rates in America. In any case, the show is just beginning, and the administration will have to convince the public that the gradual takeover of power at the Fed does not mean a new surge in inflation.
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