Donald Trump has ramped up his war on the Federal Reserve System, in particular its Board of Governors, with his attempt to terminate Governor Lisa Cook for a very questionable cause. Trump’s objective is to appoint a chair and a majority of the seven governors who will robotically do his bidding. Put differently, Trump wants to be able to control monetary policy and regulation of the financial system. He wants to apply the theory of the unitary executive to the work of the Federal Reserve, though its enabling legislation gives it considerable autonomy from the President. Trump’s anger at the Fed Chair whom he appointed, Jerome Powell, speaks to the intrinsic nature of central banking that sets it at odds with any president.

Researching the Fed

Central banking, and especially the Fed, has been an interest of mine since I wrote my undergraduate thesis about the influence of monetarism on the Fed in the Sixties and early Seventies. As I discussed in a previous post, part of the thesis was based on a detailed reading of the minutes of the Fed’s Open Market Committee, a group that includes the seven governors of the system and the presidents of the twelve regional banks and that sets the most direct policy instrument, the federal funds rate.

This was a period when President Lyndon Johnson wanted to run a low-interest rate monetary policy to support borrowing for the Vietnam War, and when President Richard Nixon wanted to do likewise to ensure his re-election in 1972. Military terminology had been assimilated into the halls of the Fed, and staff and observers discussed which governors and presidents were doves (favouring lower interest rates to stimulate employment and reduce the cost of federal borrowing) or hawks (favouring higher interest rates to counteract inflationary pressure). I found that the policymakers espoused a broader institutional goal of contracyclical stabilization, so that what could have been ideological debates between hawks and doves about values were transformed into evidence-based discussion about the interpretation of changing data. The data could be hard, such as reports from the Bureau of Labor Statistics, or anecdotal. I was impressed at how an institution facing ongoing political pressure from the likes of Johnson and Nixon had developed a self-conception that allowed it to maintain internal cohesion and collegiality as well as external autonomy. I was one of the first authors to study Fed minutes but, as more thorough transcripts have been released, other authors have followed suit.

(I regret that I can’t find the article in my home office. ChatGPT tells me it has often been cited but cannot find it online. A hardcopy of the journal in which it was published is available at Robarts Library.)

The Fed Now

What do debate and discussion at the Fed look like now in contrast to how it was then? Big brother is watching now. Do governors appointed by Trump concoct economic theories that always accord with Trump’s wishes? If so, what sort of evidence-based discussion and collegiality does that create? Trump regularly denounces governors, especially Powell. The Trump Administration is poring over the personal records of governors appointed by Democratic presidents to find something to use as cause for termination, as is now the case with Governor Lisa Cook, the first Black women to serve as a Governor. Hitherto, central bankers have been relatively low-profile, unlikely to arouse the ire of the MAGA hordes. Being denounced by Trump on social media could make governors concerned about their personal safety. Trying to prove wrongful dismissal in court is expensive, as Lisa Cook well knows.

Central banks think about a nation’s economy as a whole, and over the long term. Donald Trump is trying to destroy this key institution of the US and indeed the global economy to win the next election and to satisfy his lust for domination. Jerome Powell and Lisa Cook did not, as Mark Carney says, choose this fight. But they are fighting for the survival of an institution and their honour. I hope they win.