What can Trump do with a "majority seat" on the Federal Reserve Board?

Deutsche Bank pointed out that once Trump truly gains control of the majority seats on the FOMC, he will be able to push for more aggressive easing policies in the future and bypass FOMC decisions through technical means.

According to news from the Wind Trading Desk, Deutsche Bank published a research report on August 26, indicating that the Trump administration is seeking control of the majority seats on the board by firing Federal Reserve Governor Cook. If this strategy succeeds, it will have powerful tools to bypass the overall will of the Federal Open Market Committee (FOMC) and forcibly implement loose monetary policies.

After Governor Kugler resigned earlier this month, Trump has gained increasing support for loose monetary policies within the committee.

The two governors appointed by Trump, Waller and Bowman, voted against the interest rate cut at the July FOMC meeting and are expected to continue pushing for easing policies at the upcoming meeting. The nomination of Milan, the chairman of the Council of Economic Advisers, to replace Kugler is expected to add another dovish voice to the recent policy debate.

The U.S. Treasury market has shown a distorted steepening reaction, with long-end yields rising and short-end real yields falling, indicating that the threat to the Fed's independence will raise inflation expectations and risk premiums.

Four dissenting votes will "ignite" internal easing pressure

The report points out that if the Trump administration successfully removes Governor Cook and appoints a candidate inclined towards significant interest rate cuts, the power dynamics of the board will undergo a qualitative change.

At that time, the Federal Reserve Board will have four stable dovish votes—this constitutes a majority of the seven seats on the board.

Although this may not immediately dominate the 12 voting members of the FOMC, these four dissenting votes from the board will greatly increase internal pressure for faster and larger interest rate cuts.

A board with a majority of seats will have a collective voice that far exceeds previous levels, enough to impose significant constraints on Fed Chairman Powell and other cautious members, and this force will continue to push for easing policies even in the context of persistently high inflation data.

Bypassing the FOMC, the "nuclear option" of unilaterally lowering the IORB

This may be the most direct and disruptive power that a majority on the board can exert.

The report clearly points out a key technical detail: the authority to set the Interest Rate on Reserve Balances (IORB) lies with the board, not the entire FOMC.

Historically, the board has always set the IORB at a level consistent with the FOMC's interest rate target range to ensure that the federal funds rate remains stable within the target range. However, this is merely a convention, not a legal constraint.

In theory, a board majority that disagrees with the FOMC's decisions could take unprecedented action: unilaterally vote to lower the IORB.

If its goal is to lower interest rates and the FOMC as a whole (especially the regional Fed presidents) does not agree, the board can forcefully achieve some easing objectives through this channel.

Although the FOMC still controls the overnight reverse repurchase rate (ONRRP) and can partially offset the impact by adjusting this rate, this internal power struggle will lead to unprecedented chaotic dynamics in the money market, and while the ultimate effects may be uncertain, it undoubtedly represents a direct impact on the traditional decision-making framework of the FOMC.

Reshaping the FOMC, Rejecting the Reappointment of "Hawkish" Regional Federal Reserve Presidents

In addition to directly influencing interest rate tools, the majority of seats on the Federal Reserve Board also hold long-term power to reshape the composition of FOMC voting members.

Deutsche Bank's report emphasizes that the appointment of all 12 regional Federal Reserve presidents requires approval from the Board for reappointment every five years. The next five-year term approval cycle will occur in the first quarter of next year (i.e., the first quarter of 2026).

A majority on the Board seeking aggressive easing policies can fully utilize this power to reject the reappointment applications of regional Federal Reserve presidents who hold hawkish positions and oppose interest rate cuts.

In this way, the executive branch can gradually "cleanse" the hawkish voices within the FOMC and lean towards approving candidates that align more closely with its policy objectives, fundamentally altering the voting landscape of the FOMC and paving the way for long-term easing policies.

In summary, gaining a majority on the Federal Reserve Board is far more than just increasing a few dovish votes. It unlocks various tools capable of challenging, circumventing, or even reshaping the existing monetary policy-making framework, placing the independence of the Federal Reserve under the most severe test in decades