Trump Escalates Attacks on the Fed

Federal Reserve Governor Lisa Cook
Reuters
By Yuval Rosenberg and Michael Rainey

Good evening! Here's your Wednesday update.

Trump Calls for Resignation of Biden-Appointed Fed Governor

President Donald Trump on Wednesday called for the resignation of Federal Reserve Governor Lisa Cook, after a Trump ally alleged she may have engaged in mortgage fraud and urged the attorney general to investigate her.

Federal Housing Finance Agency Director Bill Pulte, a Trump appointee who has been a sharp critic of the Fed, wrote a letter to Attorney General Pam Bondi late last week accusing Cook of using "falsified bank documents and property records to acquire more favorable loan terms, potentially committing mortgage fraud." Cook allegedly took out mortgages on properties in Michigan and Georgia, claiming that each would be her primary residence.

"Cook must resign, now!!!" Trump wrote on his social media platform, after Pulte highlighted the letter on social media Wednesday morning.

The first African American woman in her role, Cook was appointed to the Federal Reserve Board of Governors by President Joe Biden in 2022.

Pressure campaign continues: Trump has complained repeatedly about the Fed's interest rate policy and accused Fed Chair Jerome Powell of keeping rates too high, slowing the economy and driving up the cost of payments on the national debt. In what is widely seen as an effort to intimidate Powell, Trump has accused him of bungling the renovation of the central bank's headquarters building in Washington - which could give Trump an excuse, however flimsy, to fire the Fed chief "for cause."

The call for Cook's resignation represents an escalation of Trump's attacks on the Fed and central bank officials who might be seen as standing in the way of the president's preferred policy.

Cook pushed back on Trump's call for her to step down. "I have no intention of being bullied to step down from my position because of some questions raised in a tweet," she said in a statement sent to news outlets. "I do intend to take any questions about my financial history seriously as a member of the Federal Reserve and so I am gathering the accurate information to answer any legitimate questions and provide the facts."

Pulte followed up with his own response on social media: "Write anything you or your attorneys want Miss Cook, you've been caught based on mortgage documents, not a tweet."

The bottom line: If Trump succeeds in driving Cook off the seven-member Fed board, her replacement would give the president another ally in his campaign to lower rates, and potentially produce a majority of Trump supporters on the board. Trump recently named Stephen Miran, his top economic adviser, as his choice to take a newly vacated seat, and two current members were appointed during Trump's first administration.

Gabbard Announces Large Cuts to Intelligence Office Staff and Budget

Director of National Intelligence Tulsi Gabbard on Wednesday announced the next phase in a dramatic scaling back of the office she leads, including large staffing reductions that will reduce the size of her department by nearly 50% and cut its budget by more than $700 million a year.

Gabbard described the project, dubbed ODNI 2.0, as a long-needed transformation of an agency that had grown bloated and needed to be refocused on its core national security mission.

"Over the last 20 years, ODNI has become bloated and inefficient, and the intelligence community is rife with abuse of power, unauthorized leaks of classified intelligence, and politicized weaponization of intelligence," Gabbard said in a statement. "ODNI and the IC must make serious changes to fulfill its responsibility to the American people and the U.S. Constitution by focusing on our core mission: find the truth and provide objective, unbiased, timely intelligence to the President and policymakers."

An ODNI document outlining the new initiative said that since Gabbard started as director of national intelligence, the agency has already reduced its size by nearly 30%, cutting more than 500 staffers. The agency had some 1,850 to 2,000 employees when Gabbard was confirmed in February, according to various reports.

President Trump has reportedly discussed with Gabbard the idea of shutting down ODNI completely - and that reportedly remains a possibility. "Gabbard has told the president she's fine with being the last-ever DNI, but her review found that ODNI still serves an important role for the intelligence community," Axios reports, citing unnamed officials.

Why it matters: "The reorganization is part of a broader administration effort to rethink its evaluation of foreign threats to American elections, a topic that has become politically loaded given President Donald Trump's long-running resistance to the intelligence community's assessment that Russia interfered on his behalf in the 2016 election," the Associated Press says. "In February, for instance, Attorney General Pam Bondi disbanded an FBI task force focused on investigating foreign influence operations, including those that target U.S. elections. The Trump administration also has made sweeping cuts at the U.S. Cybersecurity and Infrastructure Security Agency, which oversees the nation's critical infrastructure, including election systems."

**Quote of the Day**

"We have entered a new era of fiscal dominance."

  • Harvard economist Kenneth Rogoff, a former chief economist of the International Monetary Fund, quoted in a Financial Times article about investors warning about or weighing the possibility of a shift "in which central banks are under growing pressure to keep interest rates artificially low to offset the cost of record government borrowing."

That dynamic, in which government fiscal policy pressures shape or constrain monetary policy choices, is called "fiscal dominance."

There's been considerable debate about whether we've reached that point or could be approaching it, as Reuters' Davide Barbuscia reported this week: "Some investors argue fiscal dominance lies on an uncertain horizon, with rising debt yet to trigger unsustainable interest rates, while others see it already seeping into markets as long-term yields remain elevated even amid expectations of Fed rate cuts."

The United States is, of course, a prime example of the pressure central bankers now face, as President Donald Trump pushes Federal Reserve Chair Jerome Powell to lower interest rates, both for economic (and political) reasons and to reduce the cost of servicing the national debt. Trump has claimed that the Fed's benchmark rates is at least 3 percentage points too high and is costing the country $360 billion per point per year in interest costs. (Trump is wrong in his calculation of the potential cost savings, but the basic idea underpinning his call for lower rates remains.)

But while the clash between Trump and Powell stands out as extraordinary, the pressures facing the Fed are also hitting other central banks, as the FT's Ian Smith notes: "government debt loads and rising borrowing costs in countries such as the UK and Japan are also putting central banks under pressure to ease monetary policy, economists and investors say, through other means such as slowing plans to reduce the size of their balance sheets."

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