Aside from numerous anomalies that are clearly in existence in the first year of this Presidential administration, one item that currently sits front and center is interest rates, labor, and the Fed. Last week, Jack Janasiewicz of Natixis Research put out a piece on how President Trump is “supposedly” trying to pack the Fed with people that see the world as he does. Whether this is the case or not is not the point of this short note. Instead, I wanted to give you some very specific color on how the Fed operates, how it is structured, and how members of the Fed come to be as well as what is going on with current members.
I felt that Jack’s synopsis of this was particularly timely as the cutting of interest rates a couple of weeks ago was a major policy shift and one that cuts across all of the rhetorics being bantered about. In a nutshell, rates were cut. Why? Could be labor softness. Could be lack of inflationary growth. Could be political. Whichever, it happened! Please take a moment and read Jack’s comments below as I feel they provide great structural understanding of how our Fed is structured:
What You Need to Know:
- The Fed operates on a 12-person committee that consists of seven Fed governors, the president of the NY Fed, and four presidents from the remaining Fed regional branches who serve on a rotating basis.
- Regarding these remaining Fed branches, the Federal Reserve System has 12 regional banks each of which has a president who serves a concurrent 5-year term.
- These terms expire on the last day of February in years ending in 1 or 6 (so think 2026).
- Regional presidents are appointed by their respective bank’s board of directors and must then be approved by the Federal Reserve Board of Governors in Washington, D.C.
- The President of the US does not get to appoint regional Fed presidents.
- However, members of the Federal Reserve Board of Governors are appointed by the US president.
- The issue would be to gain control of the seven-person Federal Reserve Board of Governors in order to influence the selection of the regional presidents who are the ultimate voting members for monetary policy.
- Regarding the Federal Reserve Board of Governors, the seven members are nominated by the President and confirmed by the Senate.
- A full term is 14 years with one term beginning every two years on February 1 of even-numbered years.
- Appointments to the Board of Governors are staggered—one Governor’s term expires every two years.
- Terms are staggered to provide the Fed political independence and prevent the packing of members who favor the president’s policies.
- The board currently has one vacancy created by the resignation of Adriana Kugler, who served as governor from September 13, 2023, to August 8, 2025.
- Her term was set to end January 31, 2026. Had Kugler served out her term, she would have likely approved the next round of regional presidents.
- With this opening now, President Trump has selected Stephen Miran to serve out the rest of Kugler’s term.
- If the Senate confirms Miran, he will hold Kugler’s vote for the new regional presidents, voting against any appointees not to the administration’s liking.
- Lisa Cook becomes an important factor given her recent troubles surrounding mortgage fraud.
- Cook is a current board member, serving as a governor since May of 2022, with her term expiring on January 31, 2038.
- Cook’s firing or resignation would open up yet another seat on the Board of Governors that could shift in favor of President Trump.
- The DC Circuit Court of Appeals has denied the Trump administration’s second request for Lisa Cook to be temporarily removed from the Fed Board while her case makes its way.
- Expect the Trump administration to seek a third review, this time from the Supreme Court.
- This process would likely be slow and convoluted with the potential for the Supreme Court to issue a decision on Cook’s temporary status first and then move on to its merits within weeks or even months.
- Removing Cook from the Board while her case is reviewed likely depends on the Justices’ views. Key points for the Supreme Court to consider:
- “For cause” conduct cannot have occurred prior to the person taking office.
- Cook was not given sufficient notice and opportunity to defend herself.
- The historical context of the Fed indicates that Congress intended it to be secure from presidential influence.
- Cook’s continued service on the board as the case plays out is not harmful to the public interest.
- The current seven-member Board of Governors consists of Jay Powell, Philip Jefferson, Michelle Bowman (Trump appointee in 2018), Michael Barr, Lisa Cook, Christopher Waller (Trump appointee in 2020) and Adriana Kugler’s vacancy (with Stephen Miran set to assume her spot – a Trump nominee).
- You can see why the Cook issue becomes important as Bowman, Waller and Miran are all Trump appointees that sit on the Board of Governors.
- A Trump appointee that replaces Cook would bring that total to four, providing a majority that could block any regional president nomination not favorable to the Trump administration’s agenda.
- And Trump’s choice for Federal Reserve Chair also has a bearing on the math as it’s possible the nomination could affect Powell’s decision to serve out his term as governor through January 2028.
- While it’s common for an outgoing Chair to resign from his or her remaining years as a governor, Chair Eccles, for whom the Federal Reserve Building is named, did serve out his remaining term.
- Appointing a current governor, like Waller or Bowman, could increase Powell’s willingness to step down, thereby opening yet another seat for Trump to fill.
- Obviously, these appointees would need to fall in line with Trump’s wishes, and this remains a wildcard as well.
- The same goes for getting any newly minted regional president on board with the Trump agenda.
You are welcome to do all the research you would like to do a fact find into the Fed and its structure, but I thought this was good, concise, and gave a great mental picture of how the current board is structured and how it could change.
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