A Phil Hall Op-Ed: President Trump made history last night when he announced he was firing Federal Reserve Gov. Lisa Cook based on a criminal referral made by Bill Pulte, the director of the Federal Housing Finance Agency, that claimed Cook engaged in mortgage fraud by claiming primary residences on two different loan applications for properties in two different states.
Both federal law and the Supreme Court have determined that the president has no authority to fire a Fed official at will, but it is murky regarding dismissal for cause. The Department of Justice has not indicted Cook this matter, which allegedly occurred before her Fed appointment. Cook has vehemently denied both Pulte’s accusation and has sued to stop Trump’s attempt to remove her from office.
If you believe the administration, this endeavor represents a new front in the war on mortgage fraud. Pulte is polluting X with endless tweets that he is on a crusade against mortgage fraud, going so far to declare this brand of chicanery is keeping Fannie Mae and Freddie Mac from achieving greatness. Commerce Secretary Howard Lutnick pushed that argument in a lengthy CNBC interview this morning by declaring, “If this woman committed mortgage fraud, she should be respectful to the United States of America, to the Federal Reserve, where she says she cared about them, and she should go off into the sunset and hope to God the police don’t follow her, right?”
However, something a bit more nefarious appears to be happening which has nothing to do with mortgage fraud and everything to do with the independence of the central bank.
Let’s do the math. The Federal Reserve Board of Governors consists of seven people. Jerome Powell is the chairman, and we all know what Trump thinks about him. Powell’s term expires next May, and the administration is already vetting potential replacements.
Two board members, Michelle Bowman and Christopher Waller, have recently become highly vocal in their support of the president’s economic agenda. Both dissented at the last Federal Open Market Committee meeting by agitating for a rate cut.
The other board members are Cook and Fed Vice Chairman Philip N. Jefferson, who are both Biden appointees. There is currently one vacancy on the board following Adriana Kugler’s unexpected resignation earlier this month.
If Trump puts forth a nominee approved by the Senate for Kugler and Powell, then by next spring the board’s dynamics would be 4-3 with Trump supporters in the majority. This, of course, is assuming that the Senate approves new Trump-appointed Fed officials and those officials tow the Trump line – lest we forget, Powell was a Trump appointee (and not one of his better choices, truth be told).
By getting rid of Cook now, the president has a new vacancy to fill. Again, assuming the Senate confirmation process goes forward in the White House’s favor, the board’s dynamics will now become 4-3 in support of Trump policies, and then will become 5-2 in the spring after Powell’s chairmanship ends. How long will it be before a Trump-majority Fed board argues with the full membership of the Federal Open Market Committee – which includes several regional Fed presidents – to force 300 basis point rate cuts?
The problem with this situation is that the independence of the central bank becomes jeopardized if the new board members take their marching orders from the Executive Branch. This is even more complex when one considers the Board of Governors has the final say in the appointment of the regional Federal Reserve Bank presidents – will they only seek out Trump loyalists as nominees?
The whole point of an independent central bank is the fact it is independent. Whether their decisions are good or bad has been the subject of endless debate, but the underlying fact is that the Fed is not a division of the Executive Branch. Remember what President George H.W. Bush said about Fed Chairman Alan Greenspan: “I appointed him and he disappointed me.”
And this is not just a question of politics. After Trump’s announcement went live last night, US stock futures and international stock markets went into decline out of fear that the Fed’s independence was under attack. A prolonged assault on the Fed by the White House could easily create greater tumult in the markets.
Most likely, the president’s attempt to fire Cook will be rejected by the courts. It should also be rejected by Congress and the public. Perhaps the social media denizen who goes by the handle Blacksea said it best: “We just want rate cuts. But we got a drama series instead.”
Phil Hall is editor of Weekly Real Estate News. He can be reached at [email protected].
Phil, it is likely that he is doing both, and I don’t know if that is a bad thing.
What you wrote is, in my opinion, predicated on the notion that independence should reign supreme, and politics should not weigh in.
However, neither one of us should be so naive as to think politics was not involved in the rates cuts preceding the election, or that politics have not been involved with labor numbers. It’s all politics and always has been.
With respect to mortgage fraud, I have zero tolerance. She ‘must’ go for this reason alone. Period.
If it’s confirmed that Fed Gov. Lisa Cook broke the law, she should be Fired. End of Story.
It’s not rocket science. Anyone, can check County Records and the dates of the recorded documents and the documents themselves.
Recorded documents are Open to the public.
No large investigation required.
Just Five (5) minutes would be sufficient.
Same rules for everyone.
I’m in favor of the judicial system doing its job and if this Fed governor did commit mortgage fraud then she should be fired by Powell or whomever is in charge of personnel decisions inside the Federal Reserve. Since the President can appoint the Fed governors then only after she is found guilty would he have the legitimate reason to show her the door too. Every political person in the news today charged or is suspected of mortgage fraud deserves their day in court or in other words the due process of law. The odds are in our favor that we will get a 1/4 point rate cut or decrease in September. In December probably another 1/4 point too. I’ve always believed that the 2% inflation target was too low. Some countries have a 3% target. I think a 2.5% inflation target is more realistic. Regardless the jury is still out on how the tariffs will ultimately affect inflation. In my opinion while I believe that they will be minuscule in adding to inflationary pressures that verdict is still 6-12 months away. Powell’s Federal Reserve can quiet some of the commotion by easing rates albeit still looking hard at the inflation numbers and being prudent to not let inflation get too high. All this we will see in the near future.
While she repeatedly voted to NOT lower interest rates for us, this Fed Governor was lying on her own mortgage documents to get a lower interest rate for herself.
Let that sink in.