What Trump controlling the Fed board actually means for monetary policy

President Donald Trump has made it eerily clear that he wants to take control of the entire Fed board. And if he does, the way America handles interest rates, inflation, and the economy could change for years, or blow up in everyone’s face.

Trump’s problem with the Fed didn’t start yesterday. Since taking office in January, he’s gone after them publicly for refusing to cut rates. He’s floated removing Chair Jerome Powell, then backed down when Treasury Secretary Scott Bessent supposedly talked some sense into him.

And now he’s trying to kick out Lisa Cook, a sitting governor, so he can bring the most powerful central bank under direct executive control.

Trump wants rate-cutters, not economists

Trump doesn’t trust the Fed. He blames them for inflation after the pandemic and thinks they’ve done too little to help bring down borrowing costs. His goal now is to pack the seven-member Board of Governors with people who’ll do what he wants, when he wants.

Even if that seems far off, getting enough votes would let Trump pull levers that go way beyond the federal funds rate. The governors set the discount rate and the interest on reserve balances, two critical tools that influence how much money moves through the economy. They also control who runs the 12 regional Fed banks, with a bunch of reappointments due in 2026.

That means Trump could decide who gets to lead regional policy and set the tone for monetary decisions for years.

Inside Trump’s administration, officials claim they still believe in independence. But at the same time, Trump wants to know in advance if his nominees will vote to lower rates.

“There definitely has been mission creep on behalf of the Fed getting into climate change and issues of diversity and inclusion and things that certainly go well beyond their mandate,” said Joseph LaVorgna, Trump’s former chief economist and now an advisor to Scott Bessent.

What Wall Street thinks

Some on Wall Street agree that the Fed needs a reset. Mohamed El-Erian, chief economic advisor at Allianz, said last week on CNBC that Powell should step down before this whole thing explodes.

“This is the exact world that I was worried about,” he said. “The Fed is vulnerable on so many different fronts, and I fear now that we’ve started going down this road that I really dread.”

El-Erian wants new blood at the table, like what the Bank of England does with outside members. He also suggested reviewing the Fed’s 2% inflation target, something Powell has repeatedly defended.

But others say Trump’s moves go way beyond reform.

“This is really a story about trying to undo what had been 90 years of Fed independence,” said Roger Ferguson, the Fed’s former vice chair. “And now, for the first time, we’re seeing a direct effort to undermine that.”

Right now, Trump has two confirmed allies on the board, and Steve Miran is waiting for the Senate to confirm him as a replacement for Adriana Kugler. And when Powell’s term ends in May, that opens up another seat. Trump could hold five out of seven board spots, giving him the votes to push whatever he wants.

But there’s also the legal wall Trump has to break through. Firing Cook won’t be easy. Courts will need to decide if he even has “cause” to do it. But if he gets past that, things could move fast.

Former Bridgewater strategist Rebecca Patterson is warning investors, too. “We shouldn’t ignore this at all. This is a big deal what’s going on,” she said on CNBC’s Fast Money.

Patterson believes that Trump gaining control of the Fed would cause the yield curve to steepen, inflation expectations to rise, the dollar to weaken, and Bitcoin and gold to surge.

She followed up with a warning in an email to CNBC: “In the short-term, investors might reason that lower rates supporting growth are good for earnings. Over time, though, sustained higher inflation is going to hurt consumption, which will get reflected in earnings expectations.”

She said the risk isn’t if there’s fallout. It’s when. “Our moment might not come as quickly or easily,” Patterson said. “But looking at other countries who have gone down this road, [it] tells us where we’re headed if we’re not careful.”

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