Trump's "Three-Step Method" to Control the Federal Reserve: Replace Powell, Take Control of the Board, Dismiss Regional Federal Reserve Presidents
This year, security has been upgraded at the Jackson Hole venue, creating a tense atmosphere that vividly highlights the difficult prospects facing the Federal Reserve. In a recent article, Wall Street Journal reporter Nick Timiraos analyzed that if Trump were to gain two more nomination seats on the Federal Reserve Board, he would achieve a majority, potentially fundamentally reshaping the entire Federal Reserve system. One way he could weaken the structure of the Federal Reserve is by firing the presidents of the 12 regional banks, which would breach a key firewall that has protected its independence since the Federal Reserve was established in 1913
During the Jackson Hole Global Central Bank Conference, Trump's pressure on the Federal Reserve escalated, and the tense atmosphere at the venue vividly highlighted the difficult prospects faced by this most important central bank in the world.
According to Bloomberg, this year's Jackson Hole seminar was in stark contrast to previous years, with significantly enhanced security measures during the conference, including federal police, U.S. park police, and officers from the Teton County Sheriff's Office present at all times, some of whom were in military uniforms and armed.
On Friday morning, police had to remove one person—Trump supporter and Federal Reserve critic James Fishback—because he loudly questioned Federal Reserve Governor Lisa Cook about mortgage controversy issues in the hotel lobby.
Last week, Trump expanded his pressure from Federal Reserve Chairman Powell to the board members. He publicly stated during the conference that he would fire Governor Cook if she did not resign due to allegations of mortgage fraud.
On August 24, Nick Timiraos, a Wall Street Journal reporter known as the "New Federal Reserve Correspondent," analyzed in his latest article that Trump has appointed two members to the seven-member Federal Reserve Board. If he gains two more nomination seats, he will achieve a majority, potentially fundamentally reshaping the entire Federal Reserve system.
Additionally, Timiraos stated that after gaining a majority, another way the Trump administration could weaken the structure of the Federal Reserve would be to fire the presidents of the 12 regional banks, which would break a key firewall that has protected its independence since the Federal Reserve was established in 1913.
Directly Targeting Cook, Trump's Pressure Escalates
The Trump administration's pressure campaign on the Federal Reserve escalated to a new intensity during this conference. Previously, the pressure was mainly focused on public criticism of Powell, but now it is directly aimed at board members. Trump openly threatened to fire Governor Lisa Cook, who is the first Black woman on the Federal Reserve Board.
Trump's social media account even posted a photo of Lisa Cook with a red cross over it, labeling her a "fraud." Lisa Cook responded by stating that she would not be "coerced into resigning over certain questions raised in a tweet." Former San Francisco Fed senior advisor Tim Mahedy commented, "This should be seen as blatant extortion, an attempt to coerce decision-makers into lowering interest rates."
This action occurred shortly after Trump nominated his economic advisor Stephen Miran to fill a vacancy on the board. Analysts believe that the actions against Lisa Cook indicate that a single nomination is not enough to satisfy the White House's desire to control the Federal Reserve. As Tim Mahedy stated, the Trump administration follows the "schoolyard rules," "you give up your lunch money, and they will come back for your backpack."
Key Steps for Trump to Reshape the Federal Reserve System: Control the Board, Fire Regional Fed Presidents
Wall Street Journal's Timiraos analyzed that Trump has appointed two members to the seven-member Federal Reserve Board. If two more members are nominated, including the new chairman to be appointed next spring, the Federal Reserve Board will achieve a majority, potentially fundamentally reshaping the entire Federal Reserve system After taking control of the Board of Governors, a more disruptive goal may be to weaken the 12 regional reserve banks within the Federal Reserve system. The seven governors of the Federal Reserve are nominated by the president and confirmed by the Senate, while the 12 Federal Reserve Bank presidents are elected by local committees composed of bankers and business leaders from their respective regions.
Both groups vote on interest rate policy, but the governors serve in Washington, while the regional presidents serve in cities like New York, Chicago, and San Francisco. The term for local Federal Reserve presidents is five years, with terms running concurrently. The 12 presidents must be reappointed by the governors before March of next year.
Timiraos' analysis suggests that if Trump gains a majority on the Federal Reserve Board before March of next year, they may refuse to reappoint the regional Federal Reserve presidents. Dismissing those who have performed their duties would break decades of precedent and breach a key firewall that has protected its independence since the Federal Reserve was established in 1913.
A noteworthy precedent is that at the end of 2022, the two governors appointed by Trump, Christopher Waller and Michelle Bowman, abstained from voting on the appointment of Austan Goolsbee as president of the Chicago Fed.
The lessons of history remain profound. In the 1970s, political pressure led to a series of policy missteps by the Federal Reserve, triggering rampant inflation that ultimately had to be controlled at the cost of a painful economic recession.
If investors lose confidence in the Federal Reserve's ability to make decisions based on data rather than political pressure, the historical rewards that financial markets have given to central bank independence—lower borrowing costs and more stable currency values—may also be eroded
