Market nonchalance belies longer-term damage Trump’s Fed attacks are causing

(Originally published Aug. 27 in “What in the World“) Don’t mistake the market’s apparent calm over Trump’s attacks on the Fed as acceptance.

Analysts appear to be at a loss to explain why markets aren’t tumbling after Trump’s latest assault — saying he was firing Federal Reserve Governor Lisa Cook over allegations she lied on mortgage applications. Cook hasn’t been charged with any crime and it’s not clear that Trump even has legal authority to fire a Fed governor. The president can fire federal agency officials “for cause,” but that’s generally been interpreted as limited to official misconduct described in a 1935 Supreme Court case defining cause as “inefficiency, neglect of duty or malfeasance in office.” Cook has said she will challenge her dismissal in court, a case that is likely to end up before the Supreme Court, which in a May ruling suggested the Fed’s quasi-private status is intended to protect its independence and that it is beyond presidential control.

Even if Trump manages to replace Cook with a more pliant governor more likely to agree with his insistence that the Fed should cut rates, he’ll still lack the majority he needs on the Fed’s rate-setting committee to guarantee its compliance. With the early resignation earlier this month of Biden-appointed Gov. Adriana Kugler roughly five months ahead of the scheduled end of her term, Cook’s dismissal would give Trump four of the seven presidentially appointed seats on the Federal Open Market Committee. If he manages to replace Fed Chair Jerome Powell (who despite being Trump’s own appointee has resisted calls to cut rates) before the end of Powell’s term as a governor in January 2028, Trump will have five. But even that wouldn’t give Trump a majority on the committee.

There are two other Biden appointees on the FOMC:

• Philip Jefferson: Vice Chair (Joe Biden, term ends Jan. 31, 2036)
• Michael Barr: Vice Chair for Supervision (Biden, term ends Jan. 31, 2032)

And the five other seats are technically beyond Trump’s reach. They are filled by the president of the Federal Reserve Bank of New York, and four seats that rotate between the members of four regional groups:

• Boston, Philadelphia, and Richmond;
• Cleveland, Ohio and Chicago;
• Atlanta, St. Louis, and Dallas;
• and Minneapolis, Kansas City, and San Francisco.

Those regional Fed boards of directors have a measure of independence from the Washington-appointed Fed board of governors. The Fed board of governors appoints only three of their nine directors. The other six are elected by the commercial banks in their respective districts.

What seems more likely is that Trump will do to the Fed what he’s been doing to the Bureau of Labor Statistics, whose head he fired earlier this month after it revised job numbers downward. Markets will now wonder how much trust to put in U.S. job data; the more cronies he packs into the FOMC, the more markets will doubt the Fed’s independent resolve to control inflation.

And that, economists fret, will create upward pressure on long-term bond yields. No matter how much the Fed cuts its benchmark short-term rate, higher yields at the long end of the curve would push up borrowing costs for mortgages as well as dramatically increase the cost of borrowing for the U.S. government and of servicing its already outsized debt. For a detailed look at how that could trigger the next financial crisis, read Harvard economist Kenneth Rogoff’s excellent piece in Foreign Affairs.

The irony, of course, is that Trump’s disastrous policies are already convincing the Fed it may have to give him what he wants and cut rates anyway. Earlier this month, Powell noted after the Fed’s annual conference in Jackson Hole, Wyoming, that “the balance of risks appears to be shifting,” as the labor market weakens and high borrowing costs crimp growth.

And why is the market so blasé about the Fed? First, the market has an immediate, Pavlovian response to the prospect of lower interest rates, even if in the long run it risks triggering financial apocalypse. Second, the stock market is dominated now by big tech stocks and their promises of an AI utopia, so all eyes are on Nvidia’s scheduled quarterly earnings report later today.

AI is so big now it’s boosting power prices. U.S. electricity prices rose 9.5% on a six-month average annualized basis, according to July’s consumer price index data. Between 2020 and July 2025, they rose 37.87%, as demand from the tech industry fuels a dramatic increase in demand from the 11.77% prices rose in the decade from 2010 through the end of 2019.

Google last week said that a single text prompt on its Gemini AI assistant consumes the same amount of energy as watching TV for at least eight seconds. It also consumes roughly five drops of water.