SPOKANE, Wash. — The Federal Reserve is widely expected to head the direction President Donald Trump wants it to go on interest rates in September (albeit not as far as he’d like it to go), but that doesn’t appear to be slowing his efforts to exert greater control over the central bank.
That’s something President Trump made clear when he moved to oust Lisa Cook from the Fed Board of Governors on Monday nominally over allegations raised by the White House that Cook claimed two primary residences in mortgage documents to get a better rate on one of them. Cook’s attorney Abbe Lowell said he will file a suit challenging the firing.
Even before that legal battle has a chance to play out, the move threatens to undermine some of the credibility the Fed relies on to make effective policy. The Fed’s Board of Governors wasn’t set up to serve the president for a reason, Gonzaga economics professor Ryan Herzog said in an interview with NonStop Local’s The Pulse on Tuesday.
“The president wants the economy in their mind to be doing as well as it can and might not always agree with what the board is doing,” Herzog said. “The board has the responsibility to ensure they achieve their goals of inflation mandates and unemployment mandates.”
That disconnect between the president, who for political reasons will usually want policies that look good today, and the best monetary policy in the long run is one of the reasons that, when the Fed was established in 1913, the framers of the law that made it set up an appointment system with 14-year terms.
“Politically, most people elected to office don’t like having to conduct fiscal policy to contract the economy,” Herzog said. “They don’t like reining in spending. They don’t like raising taxes… If fiscal policy is creating potentially some inflationary effects, some undesirable effects on the economy, you want to have an independent body able to call that in, right?
While the Fed was designed to mitigate political meddling, Congress did allow for the president to remove members of the board of governors “for cause.”
Whether the yet unadjudicated allegations of mortgage fraud against Cook constitute “cause,” will be a matter for the courts. Herzog is among many economists for whom the firing is best explained as a means to exercise greater influence over monetary policy, particularly as the move followed months of Trump railing on Fed Chair Jerome Powell over the pace of interest rate cuts.
“It’s not surprising that (the White House was) trying to find something to start changing the structure of the Federal Reserve Board to get members on there that more align with potentially his political view,” Herzog said. “The targeting of Lisa Cook was very clearly done to have more appointments on the Board of Governors.”
One way the Trump administrating could demonstrate it wasn’t simply trying increase influence over the Fed would be to apply the same standards across the government.
“If mortgage fraud did happen, then I think we owe it to everyone to make sure everyone in Congress and every elected official and everyone is following the rules,” Herzog said.
The backdrop of Trump’s dispute with the Fedover interest rates is complicated. The president has publicly called for the federal funds rate to be cut to 1%, his own Treasury Secretary Scott Bessent has instead suggested a rate of 3%, reached after multiple cuts over time.
Both fall much lower than the current rate, which is set at a target of 4-4.25%.
At the Fed’s annual meeting in Jackson Hole, Chair Powell suggested openness to cutting rates, and the stock and bond markets have at least partially priced an expected cut in September, but in any case the Fedprobably won’tcut as much as the president or the treasury secretary want.
“Should it be lower? Arguably yes,” Herzog said. “It certainly could be a little bit lower, probably not as low as the president wants (given) the concerns of, ‘do we want to risk more inflation?’”
The Fed is legally required to maximize employment and minimize inflation, but those interests can come into conflict. Case in point, the last few years of very high inflation and very low unemployment were the basis for the Fed’s current more restrictive monetary policy.
“The president wants (the federal funds rate to be) lower, which inevitably will stoke more inflationary risk, which we just came through,” Herzog said. “And we saw that the American public really did not like seeing inflation hit 9%.”
Herzog noted that Cook is known as an inflation rate dove, meaning she general favors lowering the federal funds rate.
“They both want lower interest rates,” Herzog said. “Obviously there’s some other dynamic at play here that President Trump is trying to get at that central bank independence a little bit more aggressively.”
Under different political circumstances, the President firing a Fed governor could have been the major economic policy story of the year. In 2025, it joins high tariffs, the firing of the Bureau of Labor Statistics commissioner and the move to take a 10% stake in struggling microchip manufacturer Intel as ways in which the President has jolted conventional economic wisdom and precedent.
Of those, Herzog called the federal government taking a stake in Intel the most surprising given the Republican party’s historic aversion to intervening in private industry.
Herzog said the firing of Cook was less surprising as it fit into the “ongoing attempt to discredit economic data” that also explained why the president over a weak July jobs report the president called, without evidence that has compelled economists, “rigged.”
On the one hand, the Bureau of Labor Statistics is an indispensable source of economic data. On the other, the Federal Reserve has for decades applied those statistics in setting interest rates to maximize employment and keep inflation down.
In that light, Herzog sees each of these moves by the president as poor choices for the long-term economic health of the country.
“We are the gold standard across the globe in economic data and the methodologies we undertake for a country of our size are by far better than any other country,” Herzog said. “We need this data if we’re going to effectively conduct policies and understand the cost of some of these.”
Herzog said policy makers don’t just use that economic data to make decisions. It informs decisions made about those policy makers as well.
“The number one thing that determines whether an incumbent party can be reelected or not seems to be economic outcomes,” Herzog said. “Are people better off today than where they were four years ago is a constant line we hear every election cycle, and so that data gets used… to get peoples voting preferences one way or another, so I do worry that the discrediting of data is going to make it harder for people to.”
