Cook's dismissal and related fallout raise further doubts about the Federal Reserve's independence

FX168 August 11 —— The White House resumes efforts to remove Cook, while hawkish Warsh maintains frequent contact with Trump. The Federal Reserve's independence crisis is pushing up US Treasury risk premiums, with PMI and CPI becoming key focus points.

As the Trump administration resumes removal procedures targeting Federal Reserve Board member Lisa Cook and with new Chair Kevin Warsh maintaining ambiguous policy statements and frequent communications with the White House, global markets' confidence in the Fed remaining free from political interference has plunged to its lowest point.

The US Treasury market is significantly pricing in a "political risk premium." In the long run, the White House’s dual intrusions into the Fed’s personnel appointments and monetary policy are fundamentally weakening the central bank’s institutional foundation for fighting inflation and maintaining the credibility of the dollar.

Personnel Pressure Becomes Routine: Using “Past Cases” Against Cook Aims to Clear Obstacles to Rate Cuts

The Trump administration recently issued a formal notice to Federal Reserve Governor Lisa Cook, restarting the removal process on the grounds of “false statements” in her mortgage applications prior to her appointment.

The White House stated clearly in official documents that, even if the alleged behavior does not constitute a criminal offense, the "serious negligence" revealed is enough to question her capability for financial regulation, and even mentioned potential legal risks.

However, the entire set of accusations originated from Trump ally Bill Pulte, former Director of the Federal Housing Finance Agency (FHFA), who alleged that Cook declared two properties as her primary residence to obtain low-interest loans.

Cook’s team responded clearly, stating this was merely a clerical error and that the loan documents already marked the second property as a vacation home, with the lending institutions fully aware.

Cook’s acting attorney pointed out this accusation is just a rehash of a previously dismissed lawsuit and groundless; Cook herself said she would fully defend herself.

This was not Trump’s first attempt to remove Cook. The initial removal attempt in the first half of this year had already been dismissed by the Supreme Court due to procedural noncompliance.

The court ruled that, for a President to remove a member of the Fed’s Board, full notification and hearing procedures must be followed;

And the Federal Reserve Act clearly states that Board members can only be removed “for cause” due to misconduct or major wrongdoing during their term, not for disputes regarding civil documentation prior to their appointment.

The market generally sees through the White House’s real intentions: Trump’s long-standing obsession with low interest rates as a short-term economic stimulant, pushing out Cook is aimed at freeing up a Board seat for a “dovish” official entirely loyal to the White House.

This move continues his consistent logic of central bank intervention—he has previously publicly pressured former Chair Powell to cut rates and even threatened criminal investigations over renovation budgets to force him out early.

The core value of central bank independence is that politicians by nature have a preference for low rates to support election results in the short run, while the Fed must focus on countercyclical regulation to suppress inflation.



Frequent use of administrative personnel measures by the White House is eroding the institutional bedrock built over the past century.

Warsh Trapped in “Verbal Hawk” Dilemma: Frequent Private Contact Fuels Market Trust Crisis

Nominated by Trump himself, new Fed Chair Kevin Warsh initially worked hard to shake off the label of “White House puppet,” projecting a hawkish stance on inflation and asserting that rate hikes could resume at any time should inflation remain persistent.

However, from Warsh's post-July FOMC statements and the market's reaction, his hardline position remains only verbal, while in practice, he shows clear backpedaling and ambiguity.

After keeping rates unchanged at the July meeting, Warsh failed to clearly articulate the decision's rationale during the subsequent press conference.

Facing persistent media questioning on inflation policy, his answers were ambiguous: he stressed that rate hikes were only an optional tool, not a core approach, suggested that rising long-end Treasury yields have already delivered some tightening, and even hinted at a possible re-evaluation of the 2% inflation target.

These remarks sparked sharp divisions among traders, causing markets to question whether Warsh is deliberately avoiding necessary rate hikes for fear of confronting Trump, who advocates for low interest rates.

Market data clearly reflects these pessimistic expectations: after Warsh’s press conference, 30-year Treasury yields continued to rise and remain elevated.

The chief economist for BNP Paribas USA bluntly stated that dislocation at the long end of the yield curve signals deep-seated distrust of “the Fed under Warsh.”

The former PIMCO chief economist noted that Warsh’s prior high-profile anti-inflation stance is in striking contrast to his equivocation at critical moments, greatly limiting his room for future policy maneuver.

Even more worrying to the market is Warsh’s unusually frequent private interactions with the White House.

The White House National Economic Council Director Hassett has publicly confirmed that Trump and Warsh regularly discuss macroeconomics;

Trump himself has admitted to recent conversations between the two. Within the context of the Fed’s century-old traditions, routine private discussions between the chair and president remain highly controversial.

Coupled with Trump’s previous blunt interventions in monetary policy, the market cannot dispel concerns that the Fed is becoming a political instrument.

Currently, US inflation has far exceeded the 2% target for five consecutive years, driven by factors such as Trump’s tax cuts, ongoing trade barriers, and Middle East tensions pushing up energy prices— all supply-side shocks.

Although July’s CPI is expected to cool slightly due to a brief easing in the Middle East situation, oil supply disruptions could still trigger a rebound in inflation at any time, making Fed tightening essential.

There is no lack of hawkish voices within the Fed—last month, three voting members already opposed keeping rates unchanged, while only Warsh’s position remains unsettled.

CPI/PPI data are the focal point of short-term speculation, and the Treasury market’s pricing of “independence risk premiums” is explicit.

The entire market is now laser-focused on Wednesday’s CPI and Thursday’s PPI data for July.

The consensus forecast is a 0.2% month-on-month rise in core CPI in July; only if the actual figure meets or falls below expectations can it signal that inflation is steadily moving toward the 2% target. Should inflation data surprise on the upside, the market will force the Fed's hand to raise rates.

For Warsh, these two inflation reports are the perfect “litmus tests”:

If inflation data continues to run hot: Warsh faces a dilemma—either he fulfills his hawkish promise and raises rates, risking direct confrontation with Trump’s low-rate stance,

Or, he opts for inaction, letting sticky inflation worsen and completely draining the Fed’s anti-inflation credibility. The latter would push Treasury yields even higher, adding a political risk premium and steeply raising long-term financing costs across the economy.

If inflation data cools moderately: Warsh can buy time, postponing a full policy statement until the Jackson Hole central banking symposium at the end of August.

Yet this easing is only temporary; the trust deficit from administrative interference will be hard to fix in the short run.

Analysis notes that Warsh himself advocates downplaying the Fed’s Forward Guidance, arguing that less pre-commitment allows the market to more objectively reflect real demand in the economy.

However, this approach has a fatal flaw: in an environment where the White House exerts heavy pressure and market sensitivity to political interference is high, policy vagueness is only interpreted as political compromise, amplifying market mistrust.

If the Fed abandons clear policy communication, the market loses the anchor to judge the Fed’s true stance, exacerbating volatility fueled by doubts over independence.

In the mid-to-long term, financial markets have begun explicitly adjusting for the Fed’s loss of independence.

As long as Trump pursues Cook’s removal and Warsh maintains high-frequency private contacts with the White House, US Treasury yields will carry a lasting “political risk premium.”

If the September FOMC meeting opts for inaction despite strengthening inflation, the market’s trust in the Fed will face another collapse;

And since the September meeting is just ahead of US mid-term elections, with the Fed traditionally avoiding fresh rate hikes before elections, missing the September window could delay tightening until December, by which time inflation pressure could accumulate irreversibly.

Conclusion: Political Interference Normalized—Central Bank Trust Crisis May Be Prolonged

The current Fed is caught in a double trap, internally and externally:

Externally: Trump continues to use his personnel authority to pressure the Board, seeking to build a leadership team compliant with the White House’s push for rate cuts;

Internally: Chairman Warsh remains verbally hawkish on inflation but executes a vague path, frequently interacting with the White House and unable to dispel market suspicions of “political compromise.”

Central bank independence is the foundation of the dollar’s status as a global reserve currency and the last line of defense for US price stability.

Trump’s retroactive attempt to remove Cook sets a bad precedent for presidents using pre-appointment flaws to interfere in Fed personnel matters and could easily be copied by future administrations.

Warsh’s contradictions between words and actions, along with routine White House calls, are steadily weakening the market’s understanding of the Fed as “data-dependent” and detached from politics.

Looking ahead, investors need to closely track two main lines:

Macroeconomic fundamentals: Geopolitical developments and CPI/PPI inflation data, as these will determine the logic behind Fed rate hikes;

Political dynamics: Legal progress in Cook’s removal and the frequency of Warsh’s interactions with the White House.

These two key political variables will continue to shape the medium- and long-term pricing of US Treasuries, gold, and equities. The asset repricing wave triggered by the Fed’s independence crisis is far from over.