Lisa Cook and the fight for the Fed

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On Monday evening, Brendan Greeley is in his home office in Maryland, finishing up a book he's been working on forever.

I was sitting right here.

I was sitting in this chair.

This dog was sitting next to me.

I was editing a document that is still open about the creation of Euro dollars.

Brendan is getting his PhD at Princeton, and he has been studying the long, long arc of financial history.

His almost finished book is a 500-year history of the dollar.

But for 20 years, he was a journalist, a Fed watcher.

He's covered the Federal Reserve, the nation's central bank.

So on Monday, he's working away.

And you opened Blue Sky to procrastinate?

Yes, that's exactly what I did.

I opened Blue Sky to procrastinate.

And that's when you saw it.

And that's when I saw that Donald Trump had declared that he had fired Lisa Cook.

Dr.

Lisa Cook is an economist.

She was appointed by President Biden to the Federal Reserve Board of Governors.

She is the first and only black woman to hold this post.

And what Brendan is seeing on Blue Sky is that President Trump has just said he's firing her.

A president has never fired a member of the Fed Board of Governors before in history.

And to do that legally, a president needs cause.

Basically, the person has to have done something wrong.

The president claims that Lisa Cook may have made false statements to get a better deal on her mortgages.

He says that's cause to fire her.

Brendan told us the alleged wrongdoing is pretty small potatoes.

These are allegations on the level of,

did you lie about the size of your home office in your tax returns?

Not typically something that we root out and prosecute.

In response, Lisa Cook has filed a lawsuit and a judge held a hearing to consider her request to stay in her post while the case is sorted out.

As of Friday at 3.15 p.m.

Eastern, there has been no decision.

Through a lawyer, she's said that no cause exists under the law for the president to fire her.

She applied for these mortgages before she was on the Fed board and in her personal capacity as a person, she's arguing: no matter how you slice it, this is not cause.

The president and his people argue, yes, it is.

This is all going to be adjudicated, probably eventually, by the Supreme Court.

But the legal questions are not the focus of our show today.

Today, we're going to talk about why President Trump may have gone after her.

For months now, the president has been waging a pressure campaign against the Federal Reserve because he says he wants lower interest rates.

He's been talking about how he wants to fire the chair, Jerome Powell.

And this is a new tack.

Now, Brendan, remember, is studying the long arc of financial history.

And he says this move feels like a sea change to him, a big one, even in a sea of changes.

Because the independence of the Federal Reserve is like a sacred economic rule.

The decisions that the Fed makes have wide-ranging consequences for the economy.

And the idea is that they need to be able to make those decisions free free from political influence to just do what is best for all of us in the long term.

President Trump's moves have put all that in jeopardy.

And this is a big escalation.

Brendan wanders out of his office, sees his wife and kids.

I walked out into the kitchen and everybody was having a pretty nice night getting ready for first day of school today.

And like, I wasn't going to be like, kids, the president attempted to fire Lisa Cook.

Put your forks down, kids.

I wasn't going to do that to my wife.

I wasn't going to do that to the kids.

I was disturbed.

You know, we all have our moments when we sort of look at what's happening right now in America and thinking that this is really different from what came before.

And this is, for me, one of those moments.

Hello, and welcome to Planet Money.

I'm Sally Helm, and I'm Mary Childs.

President Trump's attempted firing of a Fed governor, that is unprecedented interference at the nation's independent central bank.

Today on the show, who are the Fed governors?

What do they even do?

And why does this matter?

We hear from people who used to be in that very job to find out what interest rate mechanics they have their hands on and what we might be in for.

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Before this week, it's very likely that if you knew the name of anyone on the Federal Reserve Board of Governors, it was the name of the chair, Jerome Powell.

But one thing that this Fed news reminds us us all is that the Fed is not run by just one person.

Far from it.

Here is a quick back of the napkin structure of the Fed.

There are 12 regional Federal Reserve banks placed around the country.

And in Washington, D.C., alongside the chair, there are these six other governors.

They all make up the board.

The board helps supervise banks around the country, and they vote multiple times a year on the Fed's most important decision, what interest rates should be.

And that filters through the whole economy to things like mortgage rates.

The governors are appointed by the president, confirmed by the Senate.

They serve 14-year terms, and that long tenure is meant to prevent political interference.

And to drill down on what these governors do, to understand what it is like to be them, we talk to two people who have formerly served on that board.

Betsy Duke started as a governor in 2008.

Rough year, you may recall, bit of a banking crisis.

Betsy was a banker, and she got a call from President George W.

Bush's people about joining the Fed board.

They wanted a banker, and I think they particularly wanted somebody who was a community bank.

And then finally, they wanted a woman or a minority.

And so when you put all of those together, they came up with me.

The other former governor we talked to is Dr.

Alan Blinder, famous economist now at Princeton.

He served as vice chairman of the board of governors in the 1990s.

He said the vibe was super buttoned up.

At all the big meetings, he wore a suit.

Tie?

Tie, absolutely.

Now, I used to say to people, I had two choices when I got up in the morning, which was blue or gray, striped or solid.

He said the chair at that time was another famous Alan, Alan Greenspan.

They'd known each other for years, but there was no, hey, Alan, in the hallways.

It was, hello, Mr.

Chairman, and nice to see you, Mr.

Vice Chairman.

And Betsy also remembers a super stiff atmosphere.

We had offices on this long hall hall at the Fed, beautiful hall at the Fed, offices strung out there.

But the

government rules about transparency prohibit more than three governors from gathering at any given time to talk about policy.

It was sort of like a running joke around the place that if three of us were in the room, we'd go watch the door and make sure nobody else walked in the room.

Or else the lawyers would have to tag along and then no fun can be had.

No, exactly.

This sounds kind of arbitrary, but the reason this rule exists and the reason they all take it so seriously is because four governors constitutes a majority of the board of governors.

And the decisions that these governors make can have major implications.

They can change markets.

So let's get into that.

The centerpiece of their job is their service on something called the FOMC, the Federal Open Market Committee.

That is a committee that meets every six or seven weeks to vote on interest rates.

And that, as we all know, is a very high stakes thing.

Affects Affects the whole economy, affects how much inflation we have, how many jobs we have.

And there are trade-offs.

You can't please everyone.

That is what makes the governor job so stressful.

You have to make decisions that are going to turn out to be unpopular.

For instance, back in the 70s and 80s, when inflation was super high and the Fed raised interest rates to 20%,

that was tremendously unpopular, but it was necessary in order to get that inflation under control.

So as a Fed governor, you have to be sort of of prepared to like have eggs thrown at you at the grocery.

Absolutely.

So this meeting of the FOMC is closely watched by people all around the country.

Betsy and Alan told us what goes on.

In the room are seven Fed governors, including the chair, plus the 12 heads of those regional Federal Reserve Banks.

It generally runs in two waves, so to speak, two parts.

Everybody in the room gets his or her chance to give a little, I'll call it a speech.

That may be a funny word.

It's a small group that you're speaking to, but a little speech.

So you go around the room, and each participant talks about their view of the economy.

Then there would be a second go-around, and the second go-around would be each person's view of what was appropriate monetary policy.

Basically, what should we do about interest rates?

Does it get contentious?

So, not as in tempers flaring, but as in strongly held opinions, yes.

Very strongly held opinions.

All very polite.

There's no screaming or throwing chalk or anything like that in these meetings.

People are generally not interrupted.

That's why I say they give their little speech.

But the next speaker might say, yeah, I heard that argument, but I don't believe it.

And here's why.

Alan told us, sometimes it's pretty clear coming in what's going to happen with interest rates.

And this part of the meeting is short, but sometimes it's not clear.

And the conversation goes on for a while, people arguing back and forth.

But the key thing is, this group of people is trying really hard to reach a consensus.

Because out there in the economy, in the stock market, the bond market, people want to see stability.

A cat fight in the FOMC is going to disturb the markets potentially quite a bit.

So even if there is a cat fight, you want to hide it.

One way to do that, if people are on the fence, they tend to vote with the chair.

That's not in law, but it's deeply in the tradition of the Fed that unless you disagree very substantially, you go along with the chairman's recommendation.

So if you disagree just a little, you probably don't dissent.

But you can dissent, meaning formally register your disagreement, because every meeting there is an official vote.

And the chair's vote doesn't count more than anyone else's.

Technically, it's majority rules.

The voters are the seven members of the board of governors, plus five regional fed presidents.

New York always gets a vote.

The other four votes rotate among the other regional feds.

And in these votes, people do sometimes dissent.

A lot of these are not easy calls.

You know, you'll have people who are going to dissent for very legitimate reasons.

So, for example, at the last FOMC meeting, there were two dissents in favor of lowering your interest rates.

Dissents are loud.

They get reported in the media.

They're big big deals.

So you think twice and three times

before you do that.

At the end of those three thinks, you may decide you're going to do it anyway because you really disagree.

If you really disagree on the merits of monetary policy.

And now we are getting to the heart of the current news about Lisa Cook and why people like Alan and Betsy are so worried.

Because this interest rate decision, it is really not supposed to be political.

The Fed sometimes makes decisions that people are mad about for the good of the overall long-term economy.

Allen said, that's why it's so important that they have this long tradition of independence.

And in his day, everyone bought into that political neutrality, basically completely.

I mean, we thought of ourselves as not very political technocrats, which is the nature of the job or should be.

Without naming names, I could say that occasionally a political remark would pass around the table of the board of governors, and you could almost see everybody else scowling.

Like, we're not supposed to say things like that here.

But now, as President Trump has moved to remove Governor Lisa Cook, Alan can imagine that changing.

Politics is never supposed to be brought

into the game and basically isn't.

And the fear now is that that happy circumstance may be coming to an end.

Betsy agrees with Alan.

We're entering new territory.

Was this something you worried about in your job when you were there?

Never.

Didn't even occur to you?

Never.

Not on the table.

No.

Particularly didn't occur to me that someone would

attack me personally using all the levers of government

to open up a seat on the Fed.

Just

inconceivable to me.

But that inconceivable thing seems to have just happened.

After the break, what might happen now?

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For now, as of Friday afternoon, Fed Governor Lisa Cook is still in her job.

But if President Trump does get to replace her, we wanted to know what could happen and what might that mean for interest rates and for the economy.

Alan Blinder told us, this move by President Trump to replace Lisa Cook looks like an attempt to stack the Federal Reserve with loyalists.

He's basically saying, these are not his words,

I want this Biden appointee out so I can put in a sycophant who's going to do whatever I want.

President Trump has already appointed two Fed governors.

There's an opening on the board currently.

He will get to fill it.

So if he also gets to replace Lisa Cook, then he would have appointed four of these governors out of seven, so a majority.

And he's clearly hoping that those Trump appointees will then vote to lower interest rates.

And he said he wants a huge cut.

Normally, when Fed governors talk about lowering rates, they mean by like 25 basis points, like a quarter percentage point.

25 basis points, maybe 50 basis points.

What the president wants is something much, much lower than that.

He wants 300 basis points lower.

Would it be hard to find someone with traditional credentials to join the board who would want to cut three percentage points?

I would think so.

I just can't imagine.

But say he does it.

Say he gets to appoint two new Fed governors who are willing to make a massive cut.

Then the question is, will the board do what he wants?

And it kind of depends.

The two Trump appointees currently on the Fed board, there's no guarantee that they'd agree to something like this.

They're both pretty mainstream central bankers.

They did both want to lower rates at a recent FOMC meeting while everyone else voted to hold rates steady, but they wanted to lower rates by a normal 25 basis points.

And they very much could have just believed based on what they're seeing in the economy that that was the right move.

As Betsy and Alan both said, the decision's just not always clear.

Fed Chair Jerome Powell has indicated that rate cuts are probably coming next month, so wanting a rate cut last month, not unreasonable.

Plus, four Fed governors would be a majority of the Fed board, but not a majority of the FOMC, the committee that sets interest rates, because of those regional Fed bank presidents.

Five of them also vote.

And the U.S.

president does not pick those people.

But the Board of Governors does have to reconfirm or choose those regional presidents every five years.

And that just so happens to be coming up within the next six months.

So in theory, a group of Trump appointees could use that moment to like stage a political takeover, which would be an incredibly big deal.

So that is some of the potential machinations here.

But say he gets all that.

The odds are not high, but it's not impossible.

Lowering rates a lot without the economic conditions to justify it?

Economists are pretty sure that the economy wouldn't play along.

President Trump's an exceptionally clear example of this, but in general, if you leave interest rate decisions to politicians, they're almost always going to make interest rates too low.

And what do I mean by too low?

I mean give you an economy that's too hot, so that helps you get elected.

And then later the inflation comes and you wind up with high inflation.

This is what the economic research shows happens.

When politicians pressure central banks to lower interest rates, that very often leads to inflation.

Maybe because officials lower rates when they shouldn't.

But there's this other factor.

When people even just think that political interference will lead to inflation, they start to expect it, which leads to them requesting wage increases and to businesses raising their prices, anticipating higher costs.

And this can snowball into actual high inflation.

Betsy says you do see high inflation in countries where the central bank is not independent.

Think of Argentina,

which has had outrageous levels of inflation.

Think of Turkey.

And that's the path that we would be going down if our central bank is not independent.

Well, you know,

that's what the research would tell you.

I just hope we're not getting ready to go down a path of a real-life experiment to find out if that's true.

If we do go down that path, markets will almost certainly react because people in the market also know that a not independent central bank means inflation.

So everyone trading in the market will prepare for that inflation.

By demanding higher interest rates, rates would go up, including probably mortgage rates, ironically ruining the effect President Trump says he's going for.

And Alan told us, if things start to look contentious or confusing on the FOMC,

that too would freak the markets out.

If they see the Federal Open Market Committee going haywire, they lose that ability to predict what this committee is going to do, and therefore they lose the ability to figure out what they should do.

And that's the kind of thing that can make

market crashes, bond market rates zoom up, the dollar fall.

You said that could make the market crash.

I mean, that sounds like a potentially really bad outcome.

Yeah, it is a potentially really bad outcome.

This has not happened so far.

So far, it doesn't look like markets have reacted very much to the current news, but I think that's because it's at a standoff right now.

The markets, stocks, bonds, whatever, seem to be waiting to see how it all shakes out.

Not going to freak out until they have to.

So there is a pretty good chance that what President Trump is doing would not even lead to his stated goal of lower interest rates in the economy, which kind of goes to show something that Brendan Greeley, the Fed watching historian, told us.

He thinks this whole thing is not really about interest rates.

I really have come to believe that what's happening right now is about displaying dominance.

And those of us who think about policy don't understand dominance.

Brendan says, this is really about dominance.

And he also thinks that the Fed, because they see themselves as so apolitical, they're not really prepared for a moment like this.

This is a naked political attack.

We should not dignify these allegations by assuming, well, we should let this work its way through the courts.

That's not what's happening here.

Like a member of the Fed was openly smeared to get her to voluntarily resign.

You have to figure out ways of openly saying, you are wrong.

This is important.

These are the boundaries.

And the Fed's not good at doing that.

The Fed did eventually put out a response.

It said, Congress directs the governors to serve long fixed terms, and that a president can only remove a governor for cause.

They said, quote, long tenures and removal protections for governors serve as a vital safeguard, ensuring that monetary policy decisions are based on data, economic analysis, and the long-term interests of the American people.

End quote.

To Brendan, the statement was better than nothing, but not by a lot.

One of the things that worries me both for America and for this book that I'm writing is that...

Of equal importance, let me note.

I have tried, because it's a 500-year history of the dollar, I've tried to focus on these like apocalyps changes.

You know, the book only dips into the history like once every hundred years or so.

I've really tried to figure out like, when did something really change?

Like, and the thing that I think is like, uh-oh, maybe we're at another one of those moments.

He had his grapes about the Fed before all this, but now he's like, you know what?

They weren't so bad.

Anytime somebody wants to blow up the Fed,

I think, like, man, whatever replaces this is going to be way worse.

That if we could just, I had so many complaints about the old Fed, but if we could just have the old Fed back, that would be great.

I would be happy.

Meaning, like, stop the interference stuff.

It's yeah.

Meaning, don't know what you got till it's gone.

Right?

It said they fired a Fed chair and put up their own nominee.

Something like that.

We can workshop that.

If you would like to dive deeper on this topic, we have covered the Fed a lot.

We've discussed why Fed independence is so important for the economy, the Fed's origin stories, and the time President Nixon tried to pressure the Fed.

Those episodes and more are in the show notes.

This episode was produced by Willa Rubin and edited by Jess Jang.

It was fact-checked by Sierra Juarez, engineering by Robert Rodriguez and Sina Lafredo.

Alex Goldmark is our executive producer.

I'm Sally Holm, and I'm Mary Childs.

This is NPR.

Thanks for listening.

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