Macro Notes - The Kill Shot at Fed Independence
August 26, 2025
We have had Presidents criticize the Fed Reserve Chairs before. What we’ve never had is a President act to remove a Fed Reserve Governor member before.
In a letter last night, President Trump stated that he is removing Board member Lisa Cook (whose term expires in 2038) due to allegations that she committed mortgage fraud. The Federal Reserve Act says that the President can do this “for cause” – which is generally interpreted to mean misconduct, neglect of duty or incapacity (not a policy disagreement).
A few things to note here:
- This is different from the Supreme Court’s ruling in May – which determined that the President could fire leaders of government agencies, but exempted the Fed.
- Cook has indicated that she will take whatever legal actions she can to prevent her removal. That will likely mean filing an injunction against her dismissal which would allow her to participate at FOMC meetings while the court case proceeds.
Over the long-term? The implications are clear. The President is willing to test the boundaries of his power to dismiss Fed Governors – which represents a clear and present risk for Fed independence. This will likely mean the following for markets over time…
- Steeper UST curves
- Long-end US inflation swaps extend higher
- A weaker US dollar
Additionally, perceived threats to Fed independence should be marginally supportive for gold prices.
Chart 1 – Long-end US Inflation swaps should continue to push higher
Source: Bloomberg