Donald Trump vs Federal Reserve: US President bid to fire governor alarms economists; independence seen 'hanging by a thread'

US President Donald Trump’s bid to remove Federal Reserve governor Lisa Cook has set off an unprecedented clash over the central bank’s independence, raising concerns among economists and policymakers about the future of monetary autonomy in the United States. Trump defended his action on grounds of alleged mortgage fraud, but Cook has sued the administration, saying the charges are a smokescreen to weaken the Fed and give the president more sway over interest rate policy . If Trump succeeds in replacing Cook, his appointees would command a majority on the seven-member Fed board for the first time in decades.

Legal experts note that no president has ever tried to fire a sitting Fed governor in the institution’s 112-year history, making the case a test of the constitutional and political guardrails designed to shield the central bank from White House interference, according to AP. Economists caution that the episode could have far-reaching effects on global markets, already sensitive to Trump’s repeated calls for steep rate cuts.

‘ Fed independence hangs by a thread’

Trump has long pressed the Fed to reduce borrowing costs more aggressively, urging a drop in the benchmark rate from its current 4.3% to as low as 1.3%. He has also targeted Fed chair Jerome Powell, previously warning of dismissal if cuts were not forthcoming. “The particular case of Governor Cook is not as important as what this latest move shows about the escalation in the assaults on the Fed,” said Jon Faust, a former adviser to Powell. “Fed independence now hangs by a thread.”

Economists warn that if the Fed bows to political pressure and cuts rates too deeply, it could spur excessive borrowing, weaken the dollar, and accelerate inflationary pressures. Investors worry that sustained attacks on the central bank’s autonomy could erode long-term confidence in U.S. financial markets, raising borrowing costs for both the government and businesses.

Autonomy vs accountability debate intensifies

Supporters of Trump argue that the central bank has too much unchecked power over economic decisions that affect millions of Americans. Vice President JD Vance defended the administration’s stance, saying, “What people are saying is that seven economists and lawyers should be able to make a critical decision for the American people with no democratic input.” The remark underscored a deepening political debate over how insulated the Fed should be from elected officials.

Analysts warn that undermining the Fed’s autonomy risks placing the U.S. on a path similar to countries such as Turkey, where direct political control over monetary policy has triggered hyperinflation and economic instability. Others counter that without accountability, the Fed risks becoming disconnected from the needs of ordinary Americans, particularly in an economy weighed down by $37 trillion in federal debt.

Markets brace for turbulence as reforms loom

The uncertainty comes at a delicate time. Inflation, though cooling, remains above the Fed’s long-term target, while borrowing costs are still elevated for consumers and businesses. At the same time, all 12 regional Fed presidents face reappointment in February, giving Trump a potential opportunity to reshape the broader institution if he pushes his agenda further.

Industry watchers predict heightened volatility in global financial markets as the legal battle plays out. “The Fed has survived political pressure before, but what we are witnessing is something different,” said an analyst at a Wall Street firm. “If the White House can remove governors at will, then the entire architecture of central banking in America changes overnight.”