President Fires Lisa Cook

What this means for the Economy

At 8:02 pm EDT on August 25th, President Trump announced on Truth Social that Federal Reserve Governor Lisa Cook was fired. This decision is unprecedented. It raises two questions that strike at the heart of U.S. economic stability: Is such a firing legal, and what does it mean for the economy?

The Role of the Federal Reserve

The Federal Reserve was designed to operate independently from the executive branch. Congress gave it a “dual mandate”: pursue maximum employment and stable prices. To meet those goals, the Fed sets monetary policy, primarily through interest rates, based on economic data rather than political pressure.

Why does independence matter? Because sound monetary policy often requires unpopular choices. Raising interest rates, for example, cools inflation but can also slow the economy and increase unemployment. Presidents facing reelection have a natural incentive to resist such moves. An independent central bank can take the long view.

The President’s Move

President Trump’s decision comes at a time when he has expressed frustration with high interest rates. With Governor Cook removed and Governor Adriana Kugler’s resignation earlier this month, Trump will be able to appoint two new governors to the Fed. If confirmed, his appointees could shift the balance of votes toward policies that align more closely with his preferences—such as lowering rates prematurely.

This is not speculation. History shows what happens when presidents lean too heavily on the Fed. In the early 1970s, President Richard Nixon pressured Fed Chair Arthur Burns to keep rates low before the 1972 election. That choice is now widely seen as a major contributor to the runaway inflation that plagued the U.S. economy for the next decade. The painful disinflation that followed under Fed Chair Paul Volcker required years of high interest rates and a severe recession to restore credibility.

Why Economists Are Concerned

Economists worry that undermining the Fed’s independence could erode confidence in U.S. financial markets. Investors, businesses, and households depend on predictable rules. If they believe monetary policy decisions are being made for political rather than economic reasons, uncertainty rises.

Uncertainty, in turn, carries real costs:

• Investors may demand higher returns to hold U.S. assets, pushing up interest rates.

• Businesses may delay investment because they cannot anticipate future borrowing costs.

• Households may lose confidence in the Fed’s ability to manage inflation, which can itself make inflation harder to control.

The Bottom Line

The U.S. economy has benefited enormously from a trusted, independent Federal Reserve. By removing a sitting governor in an apparent attempt to reshape monetary policy, President Trump risks weakening one of the institutions most responsible for America’s economic stability. The lesson from history is clear: when politics dictates interest rates, long-term costs to the economy far outweigh short-term gains.

Updated: Lisa Cook has provided a statement to POLITICO, “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so. I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022.”