Fed Independence at Stake Amid Lisa Cook Controversy

Amid the storm surrounding Federal Reserve Governor Lisa Cook, current and former Fed officials are emphasizing the critical importance of maintaining the central bank's independence. Cook, appointed by President Biden in 2022, is facing mortgage fraud allegations from Federal Housing Finance Agency (FHFA) Director Bill Pulte. Justice Department lawyer Ed Martin has also urged Fed Chair Powell to dismiss Cook, confirming that a criminal investigation is imminent.

Cook refused to resign last Wednesday, stating that she would not succumb to pressure from questions raised on Twitter. Cleveland Fed President Beth Hammack voiced her support for Cook, stating that she is an outstanding economist with integrity and that maintaining the Fed's monetary policy independence is essential for delivering good economic outcomes for the American people.

Wall Street Concerns and Potential Trump Interference

These developments have sparked concerns on Wall Street regarding the Fed's independence. Trump has been a vocal critic of Powell, accusing him of being too slow in adjusting interest rates and of politicization. Although he stated that he is unlikely to dismiss Powell before his term ends in May 2026, he has begun considering potential successors. Just last week, he threatened to allow a 'major lawsuit' against Powell to proceed while again demanding interest rate cuts.

The Fed has maintained stable interest rates since last December, adhering to a strictly data-dependent stance. Following the emergence of the allegations, Trump pressured Cook to resign, threatening to fire her if she didn't do so voluntarily. As a result, the probability of Cook leaving the Fed this year on the prediction platform Kalshi soared from approximately 21% to over 30%.

The Need for More Information

Former Boston Fed President Eric Rosengren believes that both Cook and the government need more information before making any decisions. He emphasized that there are only allegations at this time, with no confirmed facts, and that no one should draw any conclusions before the facts come to light.

Importance of Public Education

Former Fed Vice Chairman Roger Ferguson stressed the need for the American public to understand the Fed's role and importance, and why the country is experiencing a period of inflation. He noted that this is the first time in 30 to 40 years that people have truly experienced inflation, and everyone now recognizes that it is a hidden tax on middle- and low-income earners. He added that the Fed's mandate is to control inflation while considering full employment, and that now is the time to educate the American public about these matters, which is essential for maintaining the Fed's independence. He expressed optimism about the future of the Fed's independence, noting that people will stand up for it because they have experienced inflation and want an independent central bank to control it, and that Congress and other institutions should do everything possible to protect the Fed.