Report: The Trump administration is considering further pressure on local Federal Reserve banks

The Trump administration is seeking ways to further influence the 12 regional banks of the Federal Reserve in order to expand its control over monetary policy.

On August 26, it was reported that the Trump administration is studying plans to exert more influence over the 12 regional banks of the Federal Reserve, particularly reviewing the selection process for the presidents of these regional banks. Traditionally, the presidents of these regional Federal Reserves do not require Senate confirmation, but they hold key voting rights in interest rate decision-making bodies.

Trump stated candidly at a cabinet meeting on Tuesday:

Once we have a majority, things will change significantly, and the real estate market will improve... The interest rates people are paying now are too high.

Previously, Wall Street Insight mentioned that Trump announced on social media the immediate dismissal of Federal Reserve Governor Lisa Cook. If Cook is successfully removed, Trump could gain four seats among the Federal Reserve governors, achieving a majority in the seven-member board.

Deutsche Bank analysis suggests that Trump would then be able to push for more aggressive easing policies and bypass FOMC decision-making through technical means, where Trump could reshape the FOMC voting landscape by utilizing the appointment power of regional Federal Reserve presidents.

New Tool of Influence: Targeting the Five-Year Reappointment Vote

The Trump administration has identified a potential key tool of influence: the reappointment authority for regional Federal Reserve presidents.

According to regulations, the Federal Reserve Board must reauthorize the qualifications of all regional Federal Reserve presidents every five years, with the next vote scheduled for February next year. Following Trump's announcement to dismiss Governor Cook, this otherwise routine procedure has become exceptionally critical.

Economist Derek Tang stated:

This White House is turning over every stone to find tools to change the Federal Reserve.

He believes that once the Trump administration gains a majority on the Federal Reserve Board, it can use the reappointment voting rights to exert indirect pressure on regional presidents considered hawkish. Tang pointed out:

In the past, we assumed these reappointment votes would pass without question.

The Federal Open Market Committee (FOMC) consists of 7 Federal Reserve governors and 5 regional Federal Reserve presidents. The latter includes the president of the New York Fed and 4 of the other 11 presidents who rotate voting each year, playing a crucial role in interest rate decisions.

Selection Process Under Scrutiny: How Are Regional Federal Reserve Presidents Selected?

Although the U.S. government's intention to intervene in the selection of regional Federal Reserve presidents is evident, reports indicate that the path to inserting its preferred candidates into the local Federal Reserve system remains unclear.

According to the existing structure, the presidents of regional Federal Reserves are selected by the board of directors of their respective banks. This board consists of three types of directors, two of which participate in the selection process. Specifically, three "Class B" directors are elected by member banks within the Federal Reserve district, while three "Class C" directors are appointed by the Federal Reserve Board located in Washington.

Although some regional Federal Reserves have attempted to open the selection process in response to external criticism by holding citizen meetings in recent years, historically, most recruitment has been conducted behind closed doors.

According to reports, U.S. Treasury Secretary Janet Yellen is currently interviewing candidates to succeed Jerome Powell, whose term ends in May next year. It is reported that candidates who are ultimately not selected to serve as the Chair of the Federal Reserve may be considered for the position of regional Federal Reserve president.