The Enormous Stakes of Trump’s Effort to Fire the Fed Governor Lisa Cook

Over the years, of course, we have learned to expect abject submission from Trump’s G.O.P. quislings on Capitol Hill. In this instance, the only murmur of protest came from Representative Don Bacon, of Nebraska, who isn’t running for reëlection. Bacon said that Cook was entitled to due process and, referring to the President, stated the obvious: “This is his way to gain control of the Fed.”

The failure of Wall Street and corporate leaders to register any immediate protests demands more comment. Whether Trump is described as a would-be-dictator, a Mob boss, or a reckless gambler is largely a matter of semantics from an economic perspective. In practical terms, his modus operandi is to push things as far as he can, regardless of laws or existing norms, until he receives powerful pushback. When there is no pushback, he keeps pushing. In recent weeks, he has threatened to oust Jerome Powell, the chair of the Fed; fired the head of the Bureau of Labor Statistics, which released a jobs report that he didn’t like; and now tried to fire Cook. Taken together, these steps constitute an unprecedented effort to wrest personal control of the U.S. economic-policy machinery, but one which is entirely consistent with Trump’s broader effort to accumulate as much power as he can and dismantle any remaining constraints on his actions.

A couple of weeks ago, I wrote a column pointing to the lack of resistance from corporate America to Trump’s efforts to bully and exert control over the B.L.S., which provides economic statistics that businesses rely on every day. The independent Fed, as the steward of monetary policy and the most important player in financial regulation, plays an even more central role in the U.S. economy.

Corporate leaders know full well what is happening, and, in private, many of them are surely alarmed about the possible consequences. A few of them have even indicated as much publicly. “Playing around with the Fed can often have adverse consequences,” Jamie Dimon, the chairman and C.E.O. of JPMorgan Chase, said last month. But the corporate chiefs also know that Trump is a vengeful man with the power to target anyone who speaks out against him, or any business that displeases him. Leaders, rather than risk their future, and the future of their businesses, are keeping schtum. In doing so, they are abrogating their duties not only as prominent citizens but also as the major beneficiaries of the legal and institutional underpinnings of American capitalism, to which Trump is busy taking a jack hammer, much as his workers, decades ago, razed the Bonwit Teller building, and its Art Deco friezes, on Fifth Avenue.

In targeting the Fed, his immediate motivation is to pressure it to reduce interest rates to boost the economy. Despite all his bluster about how his protectionist policies are ushering in a new golden age, he and his economic advisers are perfectly aware that during the first half of this year economic growth slowed substantially, and that cracks are now appearing in the labor market. They also know this is a predictable response to his tariffs, which have raised taxes and generated a great deal of uncertainty. Earlier this year, in a rare moment of honesty, Trump said that the goal of restoring American manufacturing justified some short-term pain. But, even as his tariffs are starting to feed through into higher prices, he wants an inflation-wary Fed to bail him out by slashing the cost of borrowing.

Cook, in her role as one of seven Fed governors, has supported Powell’s wait-and-see policy, which has infuriated Trump. Evidently, that fury wasn’t salved by a speech Powell gave last week in which he hinted that the Fed will cut the short-term interest rate that it controls next month. Many people on Wall Street are expecting a quarter-point cut at September’s policy meeting, with the possibility of a second cut of the same magnitude later in the year. These moves would bring the federal funds rate down below four per cent—its current range is 4.25 to 4.5 per cent. Trump has said that he’d like the rate reduced to one per cent.

If he succeeds in firing Cook and replacing her with one of his loyalists, four of the Fed’s seven governors would be Trump appointees. Since the central bank’s key policymaking committee also includes five presidents of regional Federal Reserve banks, the Trump appointees wouldn’t necessarily have a majority. But with Powell’s term as Fed chairman up next May, and Trump already preparing to appoint his replacement, the President could soon be in position to exert his control over the central bank, which would surely include an effort to install loyalists at the regional reserve banks, too. (The regional bank presidents emerge from an opaque appointment process, in which the board members of these institutions, who are often local business leaders, play a key role, but the Fed governors in Washington get to exercise a veto.)

What would an America look like in which Trump effectively controlled the nation’s policy rates and, indirectly, the Fed’s ability to create money? Paul Krugman pointed to Turkey and Venezuela as examples of where we may be heading. Larry Summers pointed to Argentina. Investors can register their disapproval of harmful economic-policy developments by selling a nation’s financial assets. On Monday night, immediately after Trump announced, via social media, that he was intent on firing Cook, the value of the dollar dipped in Asian trading. “All of this, tariffs included, is just another reason the U.S. can’t be trusted,” Reuters quoted Bart Wakabayashi, a banker at State Street in Tokyo, as saying. “That’s what’s impacting the dollar.”

To be sure, the fall in the U.S. currency, which was sustained on Tuesday trading, was modest—nothing like the wholesale sell-offs that many other countries have seen when international investors lost faith in their governments and their economic policies. But for the United States, which partly relies on huge inflows of foreign capital to finance its gaping budget deficit, this isn’t necessarily reassuring. History shows that losing market confidence follows the pattern of personal bankruptcy that one of Hemingway’s characters described in “The Sun Also Rises”: “Gradually, then suddenly.” When the sudden stage arrives, it is too late to stop it, and the consequences are invariably grave. For a country that has long been the issuer of the world’s reserve currency and served as a safe haven for global investors, they could be incalculable.