Cause vs Independence

President Trump is on a mission to get interest lower, as he is convinced that is the root of the country’s problems. In order to do that, he is going to use any and all tactics to put pressure on the Fed to align with his view. Yesterday, he published a letter addressed to governor Lisa Cook, whereby he fired her from her governor seat for allegedly committing mortgage fraud. Wether that constitutes “cause” or not may be debated, perhaps even at SCOTUS level, but that’s just the tree. The forest he wants everybody to see is that he is going to get rates lower even if he needs to fire each and every member of the FOMC. But that brings a more interesting set of questions: Does it make sense to have a Fed that is dependent on the executive branch? The whole concept of the constitution and the U.S. government, rests on the concept of checks and balances. With a republican majority in Congress at least until November 2026, the president will select and appoint a new set of Fed governors, that will likely be confirmed by the Senate. Each one of them are expected to serve for 14 years. What happens if the economists at the Fed think that lowering rates is bad for the economy at this point, but the President wants them lower anyway? Are they going to torture the data until it confesses the need for a dovish stance, or are they simply going to follow instructions? What will happen to the governors on the left side of the picture below? What will the market reaction be to the realization, if that ends up happening, that we may be watering down a key institution for the U.S. and the world, as the dollar is the global reserve currency?

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