Trump "sets sights on" 12 regional Federal Reserves, intensifying the crisis of Federal Reserve independence

According to Zhitong Finance APP, informed sources revealed that the Trump administration is studying relevant plans to strengthen its influence over the 12 regional Federal Reserve Banks, a move that could extend its power beyond personnel appointments in Washington.

U.S. President Donald Trump dismissed Federal Reserve Governor Lisa Cook on Monday. If this action is approved in court, it would give him the opportunity to hold a majority on the seven-member Federal Reserve Board. However, the Federal Open Market Committee (FOMC), which is responsible for setting interest rates, also includes five regional Federal Reserve Bank presidents, who are not nominated by the White House and do not require Senate approval.

The selection and reappointment process for regional Federal Reserve Bank presidents is jointly overseen by the boards of directors of the regional banks and the Federal Reserve Board. If the U.S. government can review these processes, it would mark a further step for Trump in his attempts to influence monetary policy. Traditionally, monetary policy has been somewhat insulated from political pressure.

The Federal Reserve Board is scheduled to conduct a five-year authorization in February next year to approve the list of current regional Federal Reserve Bank presidents. Given Trump's announcement to dismiss Cook, this authorization is particularly significant. Cook's lawyer stated on Tuesday that Cook would contest this decision.

According to informed sources, several regional Federal Reserve Bank presidents began to worry earlier this summer that Trump's actions could impact their work. Trump's actions later on Monday intensified these concerns, leading the regional bank presidents to call each other to discuss the potential implications of Cook's dismissal.

12 Regional Federal Reserve Banks Under Scrutiny

Derek Tang, an economist at LHMeyer/Monetary Policy Analytics, stated, "The White House is carefully scrutinizing every matter to explore ways to change the Federal Reserve."

One possible method could be the reappointment voting for regional Federal Reserve Bank presidents. Tang noted that once the U.S. government secures a majority on the board, it could use the reappointment vote to indirectly pressure those Federal Reserve officials deemed to have a tougher stance.

He remarked on the reappointment vote, "In the past, we always took it for granted that the reappointment vote was merely a formality."

An informed source indicated that the Trump administration's goal is not to make the Federal Reserve more dovish but to closely examine the review and selection process for regional Federal Reserve Bank presidents, as these positions do not require Senate confirmation.

The five regional Federal Reserve Bank presidents serving on the FOMC include the president of the New York Fed and four rotating presidents from the other 11 regional banks.

Former Federal Reserve Vice Chair Lael Brainard warned that any political maneuver to restructure the FOMC by dismissing multiple regional Federal Reserve Bank presidents could exacerbate inflation and drive up long-term interest rates.

Unprecedented Impact on Federal Reserve Independence

Brainard stated on Tuesday, "Attempting to change the overall voting outcome of the FOMC is tantamount to an unprecedented assault on the independence of the Federal Reserve."

Since returning to the White House, Trump has repeatedly called for the Federal Reserve to cut interest rates. However, under Jerome Powell's leadership, the Federal Reserve has maintained the benchmark interest rate this year due to concerns that Trump's tariff policies could drive up inflation Powell's term as Chairman of the Federal Reserve will end in May next year, and U.S. Treasury Secretary Scott Bansen is interviewing candidates for the next Federal Reserve Chair. According to informed sources, candidates who are ultimately not selected may be considered for appointments as regional Federal Reserve presidents.

It is currently unclear how these candidates will obtain these positions.

Members of Trump's economic team and external advisors believe that the Federal Reserve failed to effectively regulate the U.S. economy before the 2008 financial crisis but gained greater power after the crisis. They also criticized the Federal Reserve for its slow response to the inflation surge in 2021-22 and its inadequate handling of the Silicon Valley Bank collapse a year later.

Trump stated on Tuesday that the candidates he nominates will soon hold a "majority position" on the Federal Reserve Board, and these candidates will support his willingness to significantly lower interest rates.

He said, "Once we get the majority vote, the housing issue will improve, and that will be very nice. People's loan rates are too high. This is the only problem we need to solve. We must lower the rates a little bit."