Trump’s Attacks on Fed Overshadow a Critical Moment for the Central Bank

Six years ago, President Trump shocked attendees at an exclusive economics conference held annually in Jackson, Wyo. by calling Jerome H. Powell, the chair of the Federal Reserve, “an enemy” of America, and likening him to China’s president, Xi Jinping.

Mr. Trump’s attacks came just after Mr. Powell addressed the world’s leading central bankers, current and former government officials and top academics, in a keynote speech on the economic outlook.

Mr. Powell is once again set to speak at the conference, which is hosted by the Federal Reserve Bank of Kansas City, amid a new barrage from Mr. Trump. The threat this time, however, is much more than just harsh rhetoric.

The president and his allies are taking aim at the inner workings of the institution, going after its top officials in a bid to install their own loyalists at the central bank. The goal is to lower borrowing costs, which Mr. Trump has said will boost the economy, and to make repayments on the government’s debt less expensive. The White House’s strategy has pushed the Fed into a defensive crouch as it tries to keep its longstanding independence from the executive branch from being chipped away.

The administration on Wednesday broadened its attacks beyond Mr. Powell to Lisa Cook, who has served as a member of the Board of Governors since 2022. Mr. Trump called on Ms. Cook to resign after Bill Pulte, the director of the Federal Housing Finance Agency, said his office had investigated Ms. Cook and found that she appeared to have falsified bank documents to obtain favorable terms on a mortgage. Mr. Pulte said the F.H.F.A. had referred the matter to the Justice Department for a criminal inquiry.

Ms. Cook responded in a statement that she would not be “bullied to step down from my position because of some questions raised in a tweet.” But she said she would take “questions about my financial history seriously” and gather the facts.

By Thursday, though, Ed Martin, an official at the Justice Department, indicated in a letter that Ms. Cook’s case “requires further examination.” Mr. Martin’s note, which was sent to Mr. Powell, suggested the department could be pursuing an investigation.

“At this time, I encourage you to remove Ms. Cook from your Board,” Mr. Martin wrote. “Do it today before it is too late! After all, no American thinks it is appropriate that she serve during this time with a cloud hanging over her.”

Mr. Powell has no legal authority to remove Ms. Cook, who was appointed to the role by President Biden and was confirmed by the Senate. The president, meanwhile, cannot remove an official at the Fed without having “cause.” Ms. Cook has not made any additional comments on the matter.

“I’ll tell you this right now, this is like the most viral story in the country right now,” Mr. Pulte said in an appearance on Fox Business. “Why are they going into Jackson Hole talking about this nonsense?”

“This is supposed to be the biggest week for the economy,” he continued. “And here we’ve got this circus clown running around saying she’s being bullied, when really, she was committing mortgage fraud.”

In doing so, Mr. Pulte teased the possibility that mortgage fraud could carry an “up to 30-year prison sentence,” as he said Mr. Trump had “ample cause to fire” Ms. Cook, arguing that she should resign and predicting that the Fed could mete out its own discipline.

The conference does not officially kick off until 8 p.m. Eastern time on Thursday, but Fed officials were already having to contend with the fallout — and the broader, more existential question about the extent to which the investigation threatened the independence of the central bank.

Susan Collins, president of the Boston Fed, said in an interview that she was just focused on doing her job and assessing the best path forward for interest rates.

“It’s a really complicated environment,” she said of the economic backdrop. “Questions about how we make decisions are appropriate and I think the public should want to hear what we’re thinking about as we make those decisions.”

“The best way for me to stay in my job is to do the best job that I can,” she added. Ms. Collins said she saw a path for the Fed to cut interest rates in September if the labor market continued to show signs of weakness, but she emphasized that the central bank still had to stay vigilant about inflation.

She said she expects price pressures stemming from tariffs to intensify over the coming quarters, which could limit how much the Fed will be able to lower interest rates overall. That kind of gradual approach, if enacted, is sure to anger Mr. Trump, whose tension with the Fed stems from a disconnect between his desire for substantially lower interest rates and the central bank’s hesitancy to deliver them.

Ms. Collins stressed the importance of the Fed’s independence at a time when policymakers are making such difficult policy decisions. She described that safeguard as “essential.”

On Thursday, Jeffrey Schmid, who leads the Kansas City Fed, addressed the allegations against Ms. Cook directly, telling CNBC that Fed officials “have responsibilities.” He added that Ms. Cook would “handle matters as she needs to handle them.”

“I think the conversation about independence of the Fed, and how we interact with all three branch of government, is always an important one,” Mr. Schmid said. “And I think, frankly, great steel is tested by fire. So lets have the conversation.”

Scott Alvarez, a former general counsel at the Fed board, said the Fed’s legal staff was limited in its ability to counsel Ms. Cook, given that the allegations relate to her personal finances and occurred before her time at the Fed.

“They can’t represent a governor in any personal matter. That’s a conflict of interest. They have to work for the Fed and just represent the Fed,” he said.

It is not clear if Ms. Cook has retained her own lawyers.

What Mr. Alvarez said the central bank’s legal team is likely doing is probing the question of what constitutes cause. That is a vague term that is interpreted to mean malfeasance or a dereliction of duty, but there are very few legal precedents for its use and none in the context of the Fed.

Recently, the Supreme Court suggested that the Fed would be treated differently than other independent agencies, the leaders of which Mr. Trump has fired over disagreements about policy. It described the Fed as a “uniquely structured, quasi-private entity.”