Trump Tries to Take Control of the Federal Reserve

Trump administration's weaponization of the DOJ part of an authoritarian pattern

One trademark of an authoritarian regime is the use of the legal system to target political opponents and forgive friends. This has the effect of undermining our basic conception of the law as a set of rules that is fairly and consistently applied. It also centralizes authority and undermines government capacity.

Trump’s call for Federal Reserve member Lisa Cook to resign, under the threat of a DOJ investigation, is a clear example of authoritarianism via lawfare. The DOJ subsequently opened an investigation, while urging Fed Chair Jay Powell to fire Cook, which he does not have the power to do. Trump then promised to fire Cook, and then declared that he had fired Cook, something he has no legal authority to do. Even as they engage in lawfare, they are making little effort to follow the actual law.

The Trump administration has already aggressively weaponized the legal system. He has pardoned the January 6th rioters. His personal defense lawyers now hold the top positions in the DOJ. One of them, Todd Blanche, has provided more favorable treatment for Ghislaine Maxwell in the search for exculpatory information about Trump, and is also alleged to have personally ordered the arrest of the Mayor of Newark.

In the federal government, DOJ officials involved in Trump investigations have been fired. The DOJ has opened mortgage fraud investigations into a prosecutor who has continued to dog Trump, New York Attorney General Letitia James, as well as one of his chief critics in Congress, Adam Schiff.

Now it is not just Trump’s opponents who are potential targets. It is anyone who is in his way. Trump has fired career bureaucrats, and the heads of independent agencies, with the acquiescence of the Supreme Court. But the Supreme Court explicitly identified one exception to Trump’s purges: The Federal Reserve. But if more members of the Fed resigned, Trump would control the most powerful federal agency not currently under his influence. If he cannot fire them, Trump might be able to force their resignation, assaulting central bank independence via threats and intimidation.

Trump has ignored the Supreme Court ruling, and now says he has fired a Federal Reserve board member, Lisa Cook. The claim is that he has done so for cause, i.e. because of a failure of Cook in her performance on the job. This was the same claim Trump had previously pushed to say he could fire Fed chair Powell, because of alleged cost overruns for a Federal Reserve building project.

The letter draws from claims of unitary executive theory (“Article II of the Constitution”). Again, the Supreme Court expressly disagreed with this claim in Trump v. Wilcox, decided in May of this year. Even as the court allowed that it was likely that they would allow Trump’s unitary executive claims over firing heads of independent agencies, they identified a specific carve-out for the Federal Reserve.

…respondents Gwynne Wilcox and Cathy Harris contend that arguments in this case necessarily implicate the constitutionality of for-cause removal protections for members of the Federal Reserve’s Board of Governors or other members of the Federal Open Market Committee….We disagree. The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.

The Supreme Court gave Trump more authority over independent agencies of any President, but it wasn’t enough for him. How far will this confrontation go? Will Trump attempt to physically block Cook from going to work? Trump does not control the physical space of the Federal Reserve, but that has not stopped DOGE, in another case, from coercing security staff to give them entry to a Congressionally created non-profit.

For context: no President has removed a Federal Reserve member for cause. The alleged misdeed is rarely prosecuted, and occurred before Cook join the Fed. There is no credible argument that it has undermined her performance on the job.

Cook rejected the claim that Trump fired her: “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so. I will not resign.” And a federal judge agreed with her, stalling Trump’s ability to remove her, even as Trump vows to appeal.

Set aside the obviously pretextual effort to remove Cook: reporters who examined her mortgage documentation found that she did tell her lender that the second property was a vacation home, not a primary residence, and has not tried to claim the property as a primary residence for tax purposes. And her home state tax authorities confirmed she broke no rules. This dramatically undercuts the claim that Cook did anything wrong.

Will the Supreme Court go along with Trump’s claim that he can remove Federal Reserve members for cause merely based on an unproven accusation? Some conversations I have had with constitutional lawyers suggests that this is perfectly plausible given the current court. If they do, then Federal Reserve independence is effectively over. Trump appointees can always gin up some charge that Trump can then decide is sufficient “for cause” cover to fire them. The reality, of course, is that in the future Federal Reserve members will be fired not for poor performance, or bad behavior, but for not obeying Trump.

And lets remember what is at stake here. There is broad consensus that central bank independence generates better economic outcomes and lower inflation. As it erodes, expect the credibility of the US economic system to decline in ways that will matter directly to everyone in the form of greater financial instability, and higher consumer and mortgage costs.

Trump appointee Bill Pulte led the attack, calling on the DOJ to investigate Cook. Again, the proposed crime is mortgage fraud — that she declared residency in two properties, but ultimately rented out one — and the proposed penalty is criminal prosecution.

Given the scale of lawlessness around financial improprieties occurring in the Trump administration, to call this hypocrisy is an understatement. If Trump supporters found mortgage fraud to be disqualifying for high public office, they would not be Trump supporters! As the New York Times notes:

Mr. Trump has himself been found liable for lying to lenders to secure more favorable interest rates. A judge in New York last year found that Mr. Trump had inflated his net worth on loan applications, and imposed a fine of about $450 million, including interest.

Trump also appeared to engage in exactly the type of mortgage fraud he accuses Cook of: receiving a lower interest rates on two Florida properties by claiming they would be his primary residence even when they were always intended to be investment properties.

Cook is in the early stages of a 14 year term that ends in 2038, so pushing her off the board would represent a huge win for Trump. Cook was confirmed by the Senate, twice, but that is not good enough for Trump’s supporters.

One reason Cook is being targeted is because she is willing to acknowledge what is becoming increasingly obvious: the economy is slowing. While Trump can fire the head of the BLS for reporting the numbers, he has to look for other ways to force Cook out.

Of course, there are other reasons why Cook may be targeted. Cook was the first Black woman at the Fed. She is a respected economist, but faced an unusual degree of hostility when she was nominated, with conservative voices labeling her unqualified. Tucker Carlson called her “economically illiterate” and “unqualified to teach junior college econ 101.”

If you want to know more about the substance of Cook’s work, you can read Nobel Prize winning economist Paul Romer on why Cook’s work is worthy of her position, and Ben Casselman’s profile of her in the New York Times.

The vitriolic attacks included the Chris Rufo accusations of plagiarism that appear to be standard for any prominent Black female academic. The questions about Cook’s qualifications looked bizarre given Trump’s nomination of Stephen Moore for the Federal Reserve, or the potential nomination of Kevin Hassett, individuals who have long given up on basic economic theory in favor of advocacy. Trump’s pick of EJ Antoni to replace a respected economist at the Bureau of Labor Statistics shows that being a respected economist is actually something of a disadvantage in Trumpworld.

To understand the moment we are in, it is also important to understand her accuser, Bill Pulte. What qualifies Pulte to be in his position, as head of the Federal Housing Finance Agency? He is the heir to a home-building fortune and an-online right-wing troll with millions of followers. He has given large amounts of money to the Trump campaign, including $500,000 to a Trump superpac via a shell company. On that basis, and his enthusiastic advocacy for Trump, he was put in charge of a federal agency.

Pulte has used his position to launch an all-out assault on the Fed, calling for Powell’s removal. Pulte was the chief source of the claim that Powell could and should be fired for cause because of cost overruns on building projects. The fact that Pulte is unqualified for his position, that there are massive conflicts of interest between his personal business and the policies of the Fed does not seem to matter. Pulte uses public resources, including the name of his public office, to promote conspiracy and target the Fed.

Trump has praised Pulte, and encouraged the attacks on the Fed, seeing the sort of amoral loyalist happy to pursue his opponents. He even brought him along on his visit to the Fed. Pulte is to the far left of Trump in the striped tie.

Haiyun Jiang/The New York Times

One wonders how much digging into Cook’s financial records, and those of other Federal Reserve members, was made to come up with the charges. Pulte is also the source of the complaints against Schiff and James. His primary activities appear to be to use weaponize public power to lead harassment and intimidation campaigns against public officials. Greg Sargent has been writing about how unusual and dubious Pulte’s practices have been in targeting Schiff.

Thus far, however, the only people who have been found to have definitively engaged in the type of mortgage

Even if the accused are ultimately absolved of any wrongdoing, the legal threats of investigation by the DOJ are potentially ruinous. Adam Schiff started a legal defense fund to deal with the accusations. Guilt or innocence matters less than the inherent vulnerability that comes from an unethical government doing all it can to destroy you.

The Wall St. Journal editorial board, hardly a supporter of Democratic appointees, was clear-eyed in this case, saying: “Where this goes is hard to know, but it’s an ominous turn in political lawfare…This is nasty business.” They noted that the type of fraud was relatively common, and rarely prosecuted, reflecting misunderstanding by clients and lack of attention by regulators. As Paul Krugman has written, the standard of deliberate misrepresentation — that Cook knew she was breaking the law — is also incredibly difficult to prove, and unlikely in most cases. Lets be real: how closely did you read the fine print of your mortgage application?

The partisan targeting of officials by Trump officials is underlined by who they are not pursuing. For example, Ken Paxton, the Texas Attorney General and Trump supporter is appears to be guilty of a worse version of the crime Cook is accused of: he declared three homes as his primary residence for mortgage purposes, while using two of them as rental properties. Three of Trump’s Cabinet members have two primary residence mortgages, the “fraud” that Cook is accused of. Don’t hold your breath waiting for the Department of Justice to investigate him.

Weirdly, the only people who seem to have been proven to have engaged in the type of fraud at the heart of Bill Pulte’s campaign…are Bill Pulte’s family. Reporters found that Pulte’s father and step-mother had been claiming homes in wealthy neighborhoods in both Florida and Michigan as their primary residence for tax purposes. Local Michigan officials said they would revoke the Pulte’s tax exemptions.

It is only in the Trumpworld where trolls and hacks who are manifestly unsuited to their position by virtue of both qualification and temperament can chase others who are qualified out of a job. With Trump calling on Cook to resign we are going to witness once more the same sorry debate about whether she was a DEI hire from such people. The smearing of Cook was bad enough in the past, but now it is accompanied by intimidation and legal threats from the government.

I don’t think anyone seriously believes that the Department of Justice would be pursuing these cases if the targets were not people that Trump wanted to threaten and remove from public life. Does anyone doubt that the investigation threats would disappear if Cook resigned and became a private citizen once more?

This is one more basic test for the media. Are they going to focus on the pretextual attacks to discredit Cook — the mortgage allegations, or her qualifications — or will they recognize the pattern of a government using its powers to crush any independent sources of power? Will they recognize the moment that we are in?

It is also a test for a Supreme Court that has given Trump much of what he wanted, but drew a line around the Federal Reserve. It turns out it wasn’t enough for Trump, who is daring them to push back against his continuing effort to make them a rubber stamp. If they surrender, it is not just the end of Federal Reserve independence, the already shaky credibility of the Supreme Court is more tenuous than ever.