2LT International News

WASHINGTON, D.C.: The independence of the U.S. Federal Reserve, long seen as a bedrock of economic stability, is facing its sharpest challenge in decades as President Donald Trump pushes to remove a sitting governor and gain greater sway over monetary policy.

Economists warn that if political control replaces the Fed’s autonomy, the fallout could reach Americans’ mortgages, car loans, and everyday borrowing costs.

Last week, Trump moved to fire Lisa Cook, the first Black woman on the Fed’s seven-member governing board, alleging she engaged in mortgage fraud. Cook has denied wrongdoing, calling the claims a pretext for Trump’s real goal: reshaping the Fed into a body more willing to slash rates at his urging. A court is expected to weigh her lawsuit soon.

The fight has sparked alarm because no president has ever tried to fire a Fed governor in the institution’s 112-year history. “Fed independence really now hangs by a thread,” said Jon Faust, a Johns Hopkins economist and former adviser to Chair Jerome Powell.

Trump has made no secret of his dissatisfaction with the central bank, demanding rate cuts as steep as three percentage points from the current 4.3 percent. By contrast, Powell has signaled the Fed will likely move more cautiously with a quarter-point cut in September. Trump has also threatened Powell’s job in the past, and says replacing Cook would give his appointees a 4-3 majority on the board.

Economists say ceding monetary policy to politics risks overheating the economy. “If the Federal Reserve falls under control of the president, then we’ll end up with higher inflation in this country probably for years to come,” said Douglas Elmendorf, a Harvard economist and former head of the Congressional Budget Office.

History provides warnings: In Turkey, political pressure on its central bank led to runaway inflation and eventually drastic rate hikes. In the U.S., White House pressure on the Fed in the 1960s and 1970s is blamed for years of stubborn inflation.

The Fed’s structure was designed to shield it from such political swings. Governors serve staggered 14-year terms, and rate decisions are made by a committee that includes 12 regional Fed bank presidents alongside the board. That balance, economists argue, has allowed the Fed to take unpopular but necessary steps—such as raising rates to control inflation—that elected leaders often avoid.

Yet Trump allies argue the central bank should be more accountable. Vice President JD Vance told USA Today that Americans deserve more democratic input, rather than leaving key economic decisions to “seven economists and lawyers.” Stephen Miran, a Trump economic adviser nominated to replace another Fed governor, has proposed reforms to make governors easier to dismiss.

Looking ahead, analysts warn the real stress test could come in February, when all 12 regional Fed presidents are up for reappointment. “The nuclear scenario is interfering with those reappointments,” said Adam Posen of the Peterson Institute. “That would be the signal that things are truly going off the rails.”