Dollar Downside Risks Build as Trump Stuffs the Fed with Doves
- Written by: Gary Howes
Image: File image of Governor Cook. Source: Federal Reserve.
"Threats to the Fed’s independence are a significant downside risk for the U.S. dollar" - MUFG.
President Trump has called for the resignation of Federal Reserve Governor Lisa Cook, escalating a campaign that could further tilt the central bank in a dovish direction.
"Fed Governor Cook must resign now," Trump said in a social media post, citing allegations of mortgage fraud.
The call follows a request by Federal Housing Finance Agency Director Bill Pulte for the Attorney General to investigate whether Cook obtained favourable loan terms under false pretences.
Pulte alleges Cook "appears to have acquired mortgages that do not meet certain lending requirements and could have received favourable loan terms under fraudulent circumstances."
Cook, appointed by President Biden, has responded publicly and denied the claims.
"I have no intention of being bullied to step down from my position because of some questions raised in a tweet," says Cook.
She adds that she will take any legitimate questions about her financial history seriously and intends to provide accurate information.
Pulte is leading efforts by the Administration to reshape the Federal Reserve's board to one that would be more inclined to vote for interest rate cuts in the future, which would be politically beneficial to the White House heading into midterm elections.
He fronts efforts by the Administration to oust Fed chair Jerome Powell, demanding a congressional investigation into renovation cost overruns at Fed headquarters.
Cook's term as governor runs until 2038 and if she were forced to resign, President Trump would gain another seat to fill on the Fed’s Board of Governors.
Two of the current seven governors, Christopher Waller and Michelle Bowman, are Trump picks.
Waller and Bowman both dissented in favour of a rate cut at the July FOMC meeting, indicating a propensity for Trump picks to do his bidding.
Stephen Miran, who serves as Chair of the Council of Economic Advisors under Trump, was nominated to replace Ariana Kugler, who resigned early to return to academia.
It is unclear whether Miran will be confirmed in time to participate in the September FOMC meeting, but he is a major advocate of a weaker USD policy, which would imply a 'dovish' stance in policy making.
Further changes are expected next year as Fed Chair Jerome Powell's term ends in May 2026.
"It is possible by this time next year that the majority of Fed governors will have been appointed by President Trump,” says Lee Hardman, currency analyst at MUFG.
Hardman warns the shift could weaken perceptions of the Fed’s independence.
"Threats to the Fed’s independence are a significant downside risk for the US dollar," says Hardman.
He notes that Trump’s desire for lower interest rates may not align with the Fed’s dual mandate.
"President Trump’s desire for lower rates, even if not justified by the Fed’s dual mandate, poses upside risks to the US inflation outlook," says Hardman.
This could undermine confidence in both the dollar and long-term US Treasuries.
Markets are watching closely ahead of Jerome Powell’s keynote at Jackson Hole on Friday.
