Federal Reserve Upheaval Sows New Uncertainty About Rate Path

Weeks before what is likely to be the Federal Reserve's first interest-rate cut of the year, an unprecedented effort by President Trump to reshape the central bank is scrambling the dynamics on its policy committee.

- Matt Grossman

In an Aug. 22 speech, Fed Chair Jerome Powell opened the door to a rate cut at the Fed's Sept. 16-17 meeting to cushion a weaker labor market. While a quarter-point reduction from the current 4.25% to 4.5% target range still looks all but assured, the breadth of support for that cut among Fed officials, and what comes after, have been thrown into doubt.

This week, Trump moved to fire Fed governor Lisa Cook over allegations of mortgage fraud, the first time a president has tried to dismiss a governor in the central bank's 111-year history.

Cook sued to block her removal, and initial arguments in Washington, D.C., federal district court Friday left it unclear whether Cook was still serving or would be able to vote at the September meeting.

The court fight over Cook's position strains internal Fed unity. Cook named Powell a defendant in her suit because she wants a judge to rule that he can't bar her from the Fed. Neither Powell nor the Fed has taken a position on the case. In court Friday, the Fed asked only that the judge, Jia Cobb, rule quickly, "to remove the existing cloud of uncertainty."

Interest rates are set by the Federal Open Market Committee, composed of a board of seven governors in Washington nominated by the president and confirmed by the Senate, and five presidents of the 12 regional reserve banks on a rotating basis.