Fed for now avoids shock to independence after Lisa Cook ruling; Stephen Miran sworn in as governor

The US Federal Reserve began a two-day meeting on Tuesday with a new governor on leave from the Trump administration joining the deliberations and a second policymaker at the table still facing efforts by President Donald Trump to oust her. The unusual circumstances, both historic in their own right, have changed what would have been a meeting about risks to the job market into a benchmark of Trump's efforts to gain influence over monetary policy.

Trump said on Tuesday he had signed documents allowing Stephen Miran, who is on leave as head of the White House's Council of Economic Advisers, to join the U.S. central bank's Board of Governors. Miran was sworn into his Fed position later on Tuesday morning and the policy meeting began at 10:30 a.m. EDT (1430 GMT). A White House spokesman also said the administration would ask the U.S. Supreme Court to allow the president's effort to fire Fed Governor Lisa Cook "for cause" to proceed.

A federal appeals court on Monday blocked Cook's firing, paving the way for the Biden appointee to participate fully in the policy meeting this week. The Fed is widely expected to cut its benchmark overnight interest rate by a quarter of a percentage point to the 4.00%-4.25% range. The timeline of any Supreme Court appeal and decision is unclear. The Fed will release a policy statement and updated quarterly economic projections at 2 p.m. EDT on Wednesday. Fed Chair Jerome Powell will hold a press conference half an hour later.


Miran's economic and rate projections could show whether he backs the ultra-low interest rates and sunny economic outlook Trump has insisted on - with a forecast that lies outside that of his colleagues - or whether his views meld more indistinguishably with the others. Trump on Tuesday said he agreed the Fed needs to be independent. Through much of this year he has berated Powell for not lowering the central bank's policy rate, which he feels should be slashed to around 1% to make government borrowing cheaper and buoy the housing market, and pushed him to resign. In a 2-1 ruling on Monday, a federal appeals court in Washington said Cook could remain in her job while litigation over Trump's effort to fire her proceeds, a decision that absent a last-minute intervention by the Supreme Court means she will participate fully at the meeting this week.

White House spokesperson Kush Desai said the administration would appeal, but gave no other details.

"The President lawfully removed Lisa Cook for cause. The administration will appeal this decision and looks forward to ultimate victory on the issue," he said. Alongside Cook, Miran will join the Fed's seven-member board following his 48-47 confirmation by the Senate on Monday and swearing-in.

POLITICAL TURMOIL LIKELY TO CONTINUE FOR FED
While a rate cut this week would mark the first such move by the U.S. central bank since December, financial markets' focus may be more fixed on the implications of the ongoing Cook saga for the Fed as an institution and for the direction of monetary policy.

The fact that courts have so far sided with Cook, avoiding the potentially disruptive ouster of an independent policymaker by a sitting president, has limited any market fallout from Trump's unprecedented decision to say he had "cause" to fire Cook because of allegations she misrepresented information on a mortgage application.

Cook denies any wrongdoing and has not been charged with any offense. The Fed has said it would follow any court ruling on Cook's status. A divided three-judge appeals panel ruled that Cook is likely to succeed with her argument that she did not receive constitutionally required due process when Trump fired her in a social media post.

"Before this court, the government does not dispute that it provided Cook no meaningful notice or opportunity to respond to the allegations against her," Judge Bradley Garcia wrote for the two-judge majority. He did not, however, address what constitutes "cause" for a presidential removal of a Fed governor, a central issue in the case.

Garcia reasoned that since Cook was likely to prevail on her due process arguments, it was not necessary to address the meaning of "for cause" for now.

With the substance of the Cook case pending and Trump considering replacements for Powell when his term atop the central bank expires in May, the political turmoil surrounding the usually staid and technocratic central bank will continue - keeping investors on edge. Indeed, Miran's approach to the job could offer a telling look at the Trump administration's plans for the Fed. Absent a board majority to approve any sweeping changes, Miran, whose term in theory only runs until January 31, may have his largest impact through how often and how intently he speaks publicly about monetary policy, the Fed's operations, the state of the economy, and things he thinks should change - even down to a Fed culture he has criticized sharply in past writings.

Whatever drama unfolds before this week's policy meeting convenes, the focus of those participating will be elsewhere - on an economy sporting a job market that is on substantially shakier footing than appeared to be the case when policymakers last met in late July, while inflation continues to drift above the Fed's 2% target thanks largely to Trump's aggressive import tariffs.

Analysts expect the job market to be the greater concern around the table, and sway Fed officials into agreeing to their first rate cut since December.