Trump takes one step back and another forward in his attempt to reshape the Fed

Stephen Miran testifies during a Senate Banking Committee hearing on his nomination to be a member of the Board of Governors of the Federal Reserve System, on Capitol Hill Thursday, Sept. 4, 2025, in Washington. (AP Photo/Mariam Zuhaib)

WASHINGTON — U.S. President Donald Trump’s goal of appointing a majority of the Federal Reserve’s board of governors faced a setback late Tuesday when a court blocked his unprecedented attempt to fire Lisa Cook.

But the very next next day, his nominee to replace another Fed governor moved forward, giving him one more opportunity during his second term to reshape the Fed.

Over time, Trump will almost certainly get the lower short-term interest rate he is seeking, economists say, although it’s unlikely the Fed will shave three percentage points from its current level of about 4.3 per cent, as he has demanded, even if he gets most of the seats on the seven-member board.

On Wednesday, Trump got one step closer to reaching a majority when the Senate Banking Committee approved the president’s nomination of Stephen Miran, one of his top economic advisers, to an open position on the Fed’s board. The full Senate is expected to approve Miran shortly. He could end up participating in the central bank’s policy meeting next week, when it is expected to reduce its key interest rate by a quarter-point to about 4.1 per cent.

But he took a step back with Cook after a federal court blocked Trump’s attempt to fire her late Tuesday. Jia Cobb, a judge appointed by former president Joe Biden, ruled that the firing was illegal because the administration did not provide sufficient cause to remove her. That means Cook is also likely to participate in next week’s Fed meeting.

The Trump administration appealed that ruling Wednesday, and many observers expect the case could end up at the Supreme Court.

Here are where things stand regarding Trump, the Federal Reserve, and its traditional independence.

Trump’s ability to fire Cook

Fed governors aren’t like Cabinet members or other officials who serve at the pleasure of the president. Under the law governing the Fed, they can’t be fired over policy disagreements, but can be dismissed “for cause.”

Trump has accused Cook of committing mortgage fraud when she bought two properties in 2021 —before she joined the Fed — which she said were both “primary residences.” Such a designation can result in lower down payments and mortgage rates than if one of the homes was classified as a rental or second house.

On Tuesday, Cobb ruled that Fed governors can only be fired for malfeasance or other actions while in office and said the White House also failed to provide Cook with a chance to formally respond to charges against her.

The appeals court or the Supreme Court could stay the district court’s decision, which would remove Cook from the Fed’s board until her case is resolved. The Supreme Court has shown sympathy for Trump’s arguments that the president can remove many officials from agencies previously seen as independent. But in a case earlier this year, the Supreme Court said that the central bank is a “unique, semi-private entity” and suggested its officials may have greater protection from being removed by the White House.

Miran’s appointment raises concerns over Fed independence

Trump picked Miran to replace former Fed governor Adriana Kugler, who stepped down Aug. 1. Miran would, if approved, simply finish her term, which expires in January.

Miran has taken the unusual step of planning to keep his job as the chair of the White House’s Council of Economic Advises if he does win Senate approval. While previous presidents have appointed their aides to the Fed, they have always then stepped down from White House jobs.

Nearly all economists and most Wall Street investors prefer a Fed that is independent from day-to-day politics. They worry that if the Fed falls under the control of the White House, it will keep its key interest rate lower than justified by economic fundamentals to satisfy Trump’s demands for cheaper borrowing.

That could accelerate inflation and over time could also push up longer-term interest rates, such as those on mortgages and car loans. Investors may demand a higher yield to own bonds to offset greater inflation in the future, lifting borrowing costs for the U.S. government and the entire economy.

Where things currently stand with the Fed

If Miran is confirmed, he will be the third Trump appointee to the Fed’s seven-member board, after Trump appointed Christopher Waller and Michelle Bowman in his first term. If Cook is able to keep her seat, then Trump’s next opportunity would arrive in May, when current Fed Chair Jerome Powell’s term ends.

It’s possible that Powell could pull an unusual move and remain on the Fed’s board even after stepping down as chair. If so, that would deprive Trump of another appointment and would force him to choose a new chair from the existing seven governors.

Powell has declined to answer when he has been asked whether he will leave the board after his term as chair ends. But if he does leave, then Trump could appoint a fourth member and gain a majority.

The four other governors are serving terms that last beyond the end of Trump’s time in office. Governors are appointed to 14-year terms, in part to shield them from political pressure.

Still, many governors step down before their terms end, so Trump may have more opportunities to add loyalists to the board.

“Over time the composition of the Fed aligns with the views of the administration because you pick like-minded people,” said Vincent Reinhart, chief economist at BNY, a bank. “The direction of travel is for lower rates.”

Christopher Rugaber, The Associated Press