Aurelia Butler

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldAaaand there it is:The Trump administration is reviewing options for exerting more influence over the Federal Reserve’s 12 regional banks that would potentially extend its reach beyond personnel appointments in Washington, according to people familiar with the matter.We speculated yesterday that this could be one of the goals of the Trump administration’s attempt at firing Lisa Cook, one of the Federal Reserve’s governors. If it wants to seize control of the US central bank and slash interest rates then it would probably have to find a way to browbeat the heads of the regional Feds, or to replace them with someone more amenable to the president’s wishes. That’s because interest rates are set by the full Federal Open Market Committee — or FOMC. This consists of the seven-member Board of Governors in Washington, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents, who serve one-year FOMC terms on a rotating basis.Therefore, even if president Trump replaced Powell with a stooge willing to vote for aggressive interest rate cuts, the new Fed chair might easily find themselves outvoted by the rest of the FOMC. In fact, even with Stephen Miran and a replacement for Lisa Cook on the board of governors, the Trump appointees would still be outnumbered in the full interest rate setting committee. This is one of the main reasons why investors have for the most part remained sanguine over the prospect of president Trump replacing Powell with one of his courtiers. After all, why sweat it if they’re going to be boxed in by a bunch of stolid, dependable mainstream economists anyway?But investors are probably underestimating the White House’s determination to take over the Fed, and Cook’s defenestration opens up an avenue to do so. With control of the Federal Reserve board — which Trump appointees would in theory have if Cook is successfully ousted — they could use its dormant powers to reshape the theoretically independent regional Feds. Although the heads of the regional Feds — based in Cleveland, Minneapolis, Dallas, Philadelphia, Kansas City, St Louis, Boston, Atlanta, Richmond, San Francisco and Chicago — are selected by local power brokers, they have to be approved every five years by the seven-member Board of Governors. And every single one of the dozen regional presidents are due for re-approval this February.This has historically been a rubber stamp process. In fact, there’s never been a case of the Fed board vetoing a president selected by the local board. But Bloomberg reports that the regional Fed heads became understandably antsy after Trump said he would fire Cook:Several of the Fed’s regional presidents began to grow concerned earlier this summer about what Trump’s plans for the central bank could mean for their jobs, according to people familiar with the matter. The president’s announcement late Monday exacerbated those concerns, with presidents making a round of calls to each other about what Cook’s firing could mean for them, according to one person familiar with the matter.The question is whether the likes of Fed governor Christopher Waller would go along with a purge, even if he is a Trump appointee and is angling to succeed Powell. Nor can the Trump administration or a Trump-controlled Fed board dictate who the local regional Fed boards nominate as their heads even if they are able to stymie the reappointment of the existing ones.The Federal Reserve Act of 1913 stipulates that two sets of directors of a regional Fed — Class B and C, who shouldn’t be directly affiliated with a supervised bank — form a search committee to find a shortlist of candidates. Class A directors are usually representatives of local banks, and therefore are prohibited from being involved in regulatory issues or the appointment of presidents.For example, Nasdaq’s CEO Adena Friedman and The Rockefeller Foundation’s president Rajiv Shah are respectively B and C directors of the New York Fed, while René Jones, the CEO of M&T Bank Corp, is a Class A director. Here you can see the make-up of the Atlanta Fed and Chicago Fed boards.This is all supposed to safeguard the independence of the regional Feds and prevent the board in Washington from gaining too much power. However . . . It would be naive to think that regional Fed directors would select a new president unlikely to be approved by the Fed board in Washington. While no president has ever been vetoed, there are signs the process has become more political, with Waller and fellow Trump appointee Michelle Bowman abstaining from voting for Austan Goolsbee when he was nominated for president of the Chicago Fed — the first time that’s ever happened, we think. Moreover, Class C directors are appointed by the Federal Reserve Board in DC, and in many districts the businesspeople that form the bulk of Class B directors could be very susceptible to pressure from the Trump administration to nominate people that align fully with the president’s goals. So if the White House really wants to go down this route then it has some options. Here is the Trump administration’s own spin on things to Bloomberg:A person familiar with the matter said the administration’s goal isn’t to make the central bank more dovish, but to scrutinize how regional presidents are vetted and chosen since they are not Senate-confirmed. More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning and welcome back to FirstFT. Here are today’s highlights: US slaps punitive tariffs on IndiaChina seeks to triple AI chip output Iranians yearning for changeNew York’s Waldorf Astoria prepares to reopenThe US has slapped punitive tariffs on India over its purchases of discounted Russian oil. The 25 per cent levy, which came on top of a 25 per cent “reciprocal” tariff, took effect at 12.01am US eastern time today. Here’s what you need to know.What will be the effect of the tariff? India is now among the worst-hit countries of Trump’s tariff war, with overall duties on a par with Brazil’s and higher than those for China. The Global Trade Research Initiative, a New Delhi-based think-tank, said textiles, gems, jewellery, shrimp and carpets would be worst affected. Semiconductors, consumer electronics and pharmaceuticals will be covered by separate, sector-specific US tariffs. Standard Chartered has forecast that the tariffs could knock as much as 1 percentage point off India’s GDP growth.Why it matters: The US is India’s largest trading partner, with two-way trade in goods worth more than $130bn in the financial year ended in March. But the White House accuses New Delhi of funding Vladimir Putin’s war in Ukraine by purchasing Russian crude oil. India has struck a defiant tone in the face of Trump’s tariff threats, saying that “the targeting of India is unjustified and unreasonable”. Relations have cooled between Trump and Narendra Modi while at the same time Indian officials have made overtures to Russia and China. The Indian prime minister is expected to visit China for the first time in seven years this weekend for a regional security summit which will also be attended by Putin. Read more on today’s developments.Trade tracker: For an overview of the US tariff rates, including a timeline, click here. Here’s what else we’re keeping tabs on today:Gaza: Trump is expected to chair a meeting at the White House today on Gaza, according to US special envoy Steve Witkoff, without providing any more details. Separately, secretary of state Marco Rubio will meet Israeli foreign minister Gideon Saar in Washington, the state department said. Company earnings: Wall Street’s faith in the artificial intelligence boom will be put to the test when Nvidia unveils its second-quarter earnings report. Canada’s Dollarama, Abercrombie & Fitch, cyber security company CrowdStrike Holdings and Snowflake also report second-quarter earnings. J M Smucker reports first-quarter results and HP Inc releases earnings for its third quarter. Five more top stories1. China’s chipmakers are seeking to triple the country’s total output of artificial intelligence processors next year, as domestic groups such as DeepSeek push for the semiconductors needed to match western rivals in developing the most advanced AI. Chinese companies are also racing to develop the next generation of AI chips. Zijing Wu in Hong Kong has more.More AI news: OpenAI’s corporate restructuring is likely to slip into next year, as the ChatGPT maker negotiates over key terms of its future relationship with Microsoft.2. Donald Trump’s push to fire a top Federal Reserve official is heading for a high-stakes legal test of the independence of the world’s most important central bank. Speaking yesterday at a televised cabinet meeting that lasted more than three hours, the US president defended his move to fire Fed governor Lisa Cook.FT View: The US president should remember that he was elected, in part, on a wave of public loathing for inflation — precisely what he risks letting loose with tighter control of the Fed.3. The US has said it is prepared to provide intelligence assets and battlefield oversight to any western security plan for postwar Ukraine as well as take part in a European-led air defence shield for the country, officials stated. The US offer represents a significant shift in stance by the Trump administration — earlier this year it ruled out any US participation in protecting post-conflict Ukraine.4. Apollo Global Management has lent millions of pounds secured against assets, including racehorses and stables, to a company owned by football “super agent” Kia Joorabchian. The unorthodox lending marks the US private capital group’s latest deal with a prominent player in Europe’s footballing landscape. Euan Healy has the details.5. SpaceX has launched its massive Starship rocket on its 10th test flight, with the spacecraft detaching from the lower-stage booster and deploying eight dummy Starlink satellites into orbit. The successful mission breaks a streak of costly failures and reinforces Elon Musk’s dominance of commercial space flight.The Big Read© Morteza Nikoubazl/NurPhoto/Getty ImagesIsrael’s war against Iran in June momentarily galvanised a polarised society in its opposition to a foreign aggressor. The sense of solidarity both surprised the autocratic leadership and delivered it a vital boost during its darkest hours. Despite the initial mood, Iranians across the political spectrum believe the conflict has exposed the vulnerabilities of the system.We’re also reading . . . A Kodak moment?: With everyone on diet drugs, WeightWatchers is under pressure to prove that it has not fallen behind the times, writes Brooke Masters.Mexico: An election in Pantelhó, in the southern Mexican state of Chiapas, this Sunday will test President Claudia Sheinbaum’s crackdown on the drug cartels. Fending off the far right: Progressives should be concerned about why democracy isn’t delivering, author Marc Dunkelman writes.De Beers sale: Botswana has hired French bank Lazard as it looks to take control of the diamond miner, days after the country received a $12bn investment pledge from Qatar.Chart of the dayXiaomi, initially dismissed as an “assembly workshop”, has overtaken rivals to become the world’s third-largest handset seller. The Chinese group is now setting its sights on becoming a high-tech manufacturer, producing foldable smartphones in-house, and recently, a vastly popular premium car. Read more on the Chinese gadget maker taking on Tesla and Apple.Some content could not load. Check your internet connection or browser settings.Take a break from the news . . . After an eight-year closure and a reputed $2bn renovation, New York’s Waldorf Astoria hotel is glittering again. A soft launch in July saw the opening of its new restaurants, lobby bar and guest rooms, while the whole hotel — ballrooms, spa and all — officially opens on September 1. The FT’s architecture critic Edwin Heathcote was among the first to stay in the revamped hotel. Here’s his review.The Waldorf Astoria, New York More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Brussels is preparing emergency measures to support the EU’s ailing aluminium industry as Donald Trump’s tariff regime diverts European scrap to the US, leaving local recycling plants in a fight for survival.The US president’s levies have dealt a double blow to the sector with an annual turnover of €40bn which directly employs 250,000 people and supports a further 1mn jobs in Europe.While exports to the US are subject to a 50 per cent levy, hitting sales, shipments of scrap are exempt from any duties. Tariffs have driven up domestic US aluminium prices, giving producers there the revenue to pay higher prices for old metal that can be reused to make fresh products. The scrap shortage is leading to European recycling plants and smelters being mothballed.“Plants are already shutting down capacity, and for our recyclers this is not about shrinking profit margins but survival,” warned Paul Voss, head of trade body European Aluminium, adding that the bloc only had “weeks to get this right”.The European Commission is considering a number of measures that it plans to announce in September. Two officials said they could include a levy on all EU scrap exports to the world. “By the end of the third quarter at the latest, the commission will consider trade measures to ensure sufficient availability of scrap,” said one, although both officials stressed that no final decision had yet been made.The aluminium industry is essential for clean technologies such as electric vehicles and wind turbines. Scrap dealing is a highly competitive market in which the waste industry sells metal to the highest bidder globally. European producers also struggle to compete with US and Chinese smelters because the latter have far lower energy costs. The EU-US framework trade deal agreed in Scotland last month failed to lower tariffs on aluminium and steel. It instead promised to work towards supply chain rules that would seek to reduce US reliance on Europe while locking Chinese steel out of the transatlantic market.Brussels is pushing for a quota that would spare some EU steel and aluminium exports from tariffs, which would be close to historic export volumes. Between 2019 and 2024, EU exports of aluminium scrap grew by 53 per cent, while domestic use was up only 5 per cent. While Asia, led by China, accounts for two-thirds of EU scrap exports, sales have recently shot up in the US. They almost tripled in the first three months of the year, and US scrap prices are now 20 per cent higher than European ones, according to data provided by European Aluminium. Trump applied tariffs on finished products in March. Customers such as drink can makers are increasingly demanding higher recycled metal content, further fuelling demand. The EU industry has invested heavily in recycling furnaces but receives about 2mn fewer tonnes of scrap than it can process.Any move to limit EU scrap exports is likely to exacerbate tensions with the Washington, however. The EU had threatened to ban steel and aluminium scrap exports to the US until the two concluded their trade deal last month. Scrap dealers have been lobbying against dramatic measures. Olivier François, president of trade body EuRIC, has warned against “introducing measures that could unintentionally harm the competitiveness of the European recycling industry without improving circular materials’ availability for EU manufacturers”.A commission spokesperson said: “Global overcapacity is a serious threat to the profitability and competitiveness of this sector. This is why the commission has put in place a monitoring tool on scrap, and will carefully assess the data collected before taking further steps.”The commission had already put tariffs on many imports of steel and aluminium, the spokesperson added. This article has been amended to delete the reference to ferroalloys in the last sentence More

Since stepping up in 2021 to run General Catalyst, one of the US’s largest and most active venture capital firms, chief executive Hemant Taneja has taken a wide-ranging and unusual approach to investment in artificial intelligence. The firm has backed some of the biggest start-ups in the sector, including Anthropic and Mistral. But it has also launched an “AI roll-up” strategy to buy mundane service businesses and inject them with AI, and acquired a hospital system last year that Taneja says can be revamped with technology. General Catalyst’s backers have rewarded the voyage into uncharted territory, with the firm raising an $8bn fund last year. In this conversation with the Financial Times’ venture capital correspondent George Hammond, Taneja describes how the firm is investing that pot amid an AI investment bubble, and the risks if AI is not developed responsibly.George Hammond: Let’s start with General Catalyst’s approach. You describe the firm as “an investment and transformation company” and I wanted to break down your approach to AI in both those regards. How does a firm like yours make money from AI? Hemant Taneja: Let’s start with the idea that AI is a transformative force and the value really accrues to companies that have existing customers and data, because they can actually be beneficiaries of applied AI. Organisations that have the culture and courage to transform themselves will be strengthened by AI; organisations that don’t will be left behind. It starts with that theory of change. Then let’s break down the transformation of a business into various components: one, does an enterprise have the infrastructure that can adopt AI? Second, do the language models work well enough for the industry at large or do you need to build small models on top that are required to address the needs of that particular business function?Third is the workforce transformation: are you going to have an organisation that can be highly productive, with human beings as well as AI agents working in concert with each other? GH: When you apply that AI framework, what are some of the opportunities that come out in a field such as healthcare, where you have done a lot of work? HT: Let’s take an operational example: you have a call centre, can you “AI-enable” that? One of the companies we’re building, Crescendo, is working on that. The other example is Hippocratic: you train an AI nurse and make it be exceptionally smart, safe, empathetic and very affordable compared with what it costs to have a nurse on the phone. What that does is alleviate the workforce and, if it’s cheap enough you can have a mindset of abundance rather than triage. Show video infoThink about taking AI and saying “can the call centre be more cost-effective so the company or the health system can have operational leverage and be more profitable”. And can we rethink the value proposition to the consumer or the patient because our AI nurse is so cost-effective that we can afford to call everybody, with a much greater frequency and for a much longer period to take care of them?If you generalise what I just said, by applying AI to a customer experience, you can enable every business to think with that kind of depth and how to take it to the consumer. That’s a transformative value proposition for the businesses that end up applying it. GH: Are we talking about a value proposition or reality at the moment? There’s huge promise to applied AI, but there’s also a lot of friction from patients using virtual agents, issues for existing employees, and quality and fidelity questions around AI tools as they are now. Is this gaining traction in a meaningful way? HT: There’s a nuanced answer to that. If you look at the traction that Hippocratic is having, they are making hundreds of thousands, if not millions of calls a month, that nurses would have been making. People are being taken care of and the customer support costs of a health centre are going down. That is real because we built it in collaboration with the health system. If I take a normal call centre, if you look at the customer support companies that are going in and saying, “hey, let’s apply AI”, you will see mixed results. You have to update the infrastructure, add the models, transform the workforce, for AI to really take hold. That’s a very hard problem. Our theory of change was: the places where organisations have already decided to outsource, because of labour arbitrage, were the places to start. They were already comfortable saying “this call centre in the Philippines will make calls for us”. To outsource from that to an AI agent making calls is a much lighter lift.That’s where the bright spots and the challenges are. There’s inertia. But again, those are great insertion points in the enterprise and that’s why these AI roll-ups are an easy entry point. GH: Could you capture in a nutshell what the AI roll-up strategy is?HT: Take any department in the enterprise, what we have done is partnered with a strong technology team and acquired service businesses in those departments. That includes customer experience, legal, accounting, finance in industries like insurance, healthcare and others. We’re going to find those companies that were traditionally service and labour companies and transform them with AI.Hemant Taneja: ‘The consequence is that we’re essentially taking away [offshoring] jobs in emerging economies that made up their middle market. And we’re transforming those jobs into AI productivity opportunities’ More

Donald Trump’s efforts to get the US Federal Reserve to cut interest rates are relentless. The US president has already goaded and threatened the Fed chair Jay Powell. This month he nominated his ally, Stephen Miran, to a vacant board slot. On Monday night, he took a more forceful approach. With unproven allegations of mortgage fraud hovering over governor Lisa Cook, Trump saw an opening, and fired her “effective immediately”, citing his powers to remove her “for cause”. Cook claims “no cause exists under the law” to justify her sacking. A court battle is set to ensue.Whatever the outcome, the assumption that the Fed will set rates based on its own economic judgments has been dealt a severe blow by Trump’s determination to undermine it. The president has recently called for policy rates to go down to 1 per cent, well below their current perch at 4.25 to 4.5 per cent. He may think this will buoy voters and reduce government borrowing costs. But by undermining the central bank’s credibility he risks making the economic situation worse.The president’s move against Cook — the first Black woman to serve on the Fed’s board of governors — is unprecedented. Even if she is found guilty of falsifying mortgage statements it is unclear if the courts will deem that sufficient for her to be fired. But, if they did, it could erase any notion that the Fed is independent. Cook has been in support of keeping rates on hold in order to parse the price-raising effects of Trump’s tariff policies. The president could replace her with another pliant governor, and use his insiders to undermine other rate-setters. With more dovish policymakers in place, rates could fall faster than necessary, raising inflation pressures. At Jackson Hole last week, Powell already opened the door to rate cuts as early as September. But with mounting evidence in recent weeks that import duties are raising domestic price pressures, a rate cut is not set in stone. That may, in part, explain Trump’s drastic actions on Monday. Either way, in the interim, investors are increasingly pricing in the possibility of a captured Fed. Following Trump’s announcement on Cook, 30-year bond yields — which have remained uncomfortably elevated in the president’s second term — nudged higher. The dollar weakened further too. These market moves are ultimately counter-productive for the president. Higher long-term bond yields push up mortgage rates and public borrowing costs. A weak dollar adds to imported price pressures. If households and businesses expect the president will relentlessly undermine the Fed to get rates down, their inflation expectations may increase. That raises the chances of tariff-related price increases becoming entrenched.That said, some analysts are concerned that investors aren’t taking Trump’s cumulative threats on the Fed’s independence seriously enough. Although bond yields jumped on Tuesday, they eased back somewhat over the course of the day. It is true that the president’s efforts to exert his influence on the Fed still faces hurdles. Cook’s removal and replacement faces legal wranglings. With 12 individuals on the central bank’s rate-setting committee, there are indeed other checks and balances. But investors also have shown signs of being lulled into a false sense of security. The Fed’s independence has been dramatically weakened under Trump’s second term, and the direction of travel under his presidency is clear. The move against Cook shows that his administration will leave no stone unturned in its attempts to cut the cost of credit.Trump should remember that he was elected, in part, on a wave of public loathing for inflation — precisely what he risks letting loose with tighter control of the Fed. Ultimately, more severe market ructions might be what is needed to force Trump to pull back from causing greater damage to the central bank and the US economy at large. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The EU said it would keep moving forward with its landmark digital rules despite President Donald Trump threatening retaliatory tariffs against countries whose taxes or laws target US tech companies.“It is the sovereign right of the EU and its member states to regulate economic activities on our territory which are consistent with our democratic values,” European Commission spokesperson Paula Pinho said in response to Trump’s threat, issued via his Truth Social platform late on Monday.“This is also why this was not part of our [trade] agreement with the US,” Pinho added.Trump threatened tariff and export controls on countries whose taxes, rules or laws on tech companies “discriminate” against the US. The threat came only days after Brussels and Washington outlined the full details of their transatlantic trade deal struck in Scotland in late July, in which the EU agreed to 15 per cent tariffs on most of its goods.One EU official said the trade deal had “bought [the EU] some breathing space” but that Brussels had always expected other issues would require additional negotiations with Washington.The official added that Brussels was adopting a strategy of remaining calm and not responding to all of Trump’s statements literally.“It was obvious this would happen [on digital rules],” said an EU diplomat. “Concessions are seen by him [Trump] as a sign of weakness making him come back for more.”The US had pressed for changes to the EU’s digital regulations as part of the trade talks, according to people involved. Washington especially took aim at the bloc’s landmark Digital Services Act (DSA), which forces big tech companies to police their platforms more aggressively. But Brussels resisted the pressure from the US government, which believes the EU is unfairly targeting American companies and infringing freedom of speech principles championed by the Maga movement. Pinho stressed that trade and digital rules were “separate questions”. She said that the bloc would continue to implement the framework trade agreement.The EU aimed this week to propose legislation to lower tariffs on US imports of industrial goods and some agrifood products to the bloc, she said. The US has pledged to reduce tariffs of 27.5 per cent on European cars to 15 per cent when it does so.Trump’s attack on digital rules and taxes also coincides with Brussels needing to decide on a number of investigations into American tech companies.The EU has yet to decide on one of its investigations into Elon Musk’s X under the DSA. In preliminary findings last year, Brussels said X was in breach of the bloc’s regulations for deceptive design and insufficient access to data and transparency. The EU also has to choose whether it wants to impose potential new fines on Apple and Facebook owner Meta under the Digital Markets Act, which is designed to curb tech giants’ dominance of the digital marketplace. Apart from the European legislation, several EU member states, including France, Italy and Spain, have digital services taxes.Trump’s renewed broadside against digital taxes also poses potential difficulties for the UK, which narrowly avoided cutting or scaling back its own digital services tax when it concluded its mini trade deal with Washington in May.UK ambassador to Washington Lord Peter Mandelson has said he wants to conclude a tech deal with the US, which will focus on AI development.If Trump does impose new sanctions or tariffs, the EU has options to retaliate, although it has so far been reluctant to deploy any of these out of fear of sparking a damaging trade war.It has approved, but paused until February, levies on €93bn of annual US imports and could impose them swiftly.Member states could also revive the idea of using the bloc’s “anti-coercion instrument” to hit Big Tech. This would allow Brussels to exclude US companies from public procurement contracts or ban royalty payments among other things.France has already pressed for this as it is unhappy with the trade deal struck in Turnberry, Scotland.Additional reporting by Peter Foster in London and Henry Foy in Brussels More

Donald Trump’s decision to fire Federal Reserve governor Lisa Cook is a pivotal moment. It signals the US president’s switch from unpleasant name-calling of the Fed to an all-out assault on central bank independence. There is every reason to fear for the survival of a key pillar of US and global economic stability.It is important to see the forest for the trees here. Do not get distracted by the detailed questions over Cook’s mortgage applications, about which we know only a sketchy and one-sided story. What we are seeing is a cold and calculated display of intent to ensure the Fed bends to the president’s view of how to run the US economy. The first question is why one person on the Fed’s seven-member board is so important when there are 12 voting members on the interest rate-setting Federal Open Market Committee. This is simpler that it sounds. If Cook departs the Fed, Trump will have a majority of appointees on the Fed’s board. He picked Christopher Waller and Michelle Bowman in his last administration and has nominated Stephen Miran to fill the vacant spot left earlier this month when Adriana Kugler resigned. Waller and Bowman have already dissented from the majority decision at the July meeting of the FOMC to hold interest rates.Fed governors are supposed to leave politics at the doorstep when they enter the Eccles Building. The institution does not work normally if partisan operatives are on the board and this appears to be the president’s intention. Unlike Fed governors, the other five members of the FOMC are regional Fed presidents and not appointed by the president or confirmed by Congress. This puts them in a legally difficult constitutional position if they were to join a minority of Fed board members to outvote the board’s majority on interest rates.According to former Fed governor and now professor Dan Tarullo of Harvard Law School, the majority of the board could ultimately fire them, ensuring that a majority on the board was able to prevail in setting monetary policy. He wrotelast year that such a scenario would be “no way to run a central bank”. “The FOMC personnel drama would consume financial markets. The projection of a solid institutional footing, on which central banks rely for their credibility, would at least for a time be undermined,” he added. That is true, but it is Trump’s way. If Cook leaves, few of the FOMC can feel safe.Of course, Cook can challenge her dismissal in the US courts and has vowed to do so. Judging by how similar cases have fared with the judiciary, this promises to be a lengthy battle. Other heads of non-partisan bodies, such as Gwynne Wilcox, who Trump fired as a member of the National Labour Relations Board in January, have their cases still going through the courts but are not allowed to serve until the decisions are final.Lower courts reinstated them saying the president’s actions had been unlawful, but the Supreme Court ultimately said it wanted the arguments heard and in the meantime more injury would be done to the president if they continued to serve than the damage done to themselves or their institutions if they sat it out. We do not know whether this will be the route through the courts that Cook’s case will take, but it is a reasonable initial expectation. Ultimately, those defending the Fed’s independence will rely on the Supreme Court, which has form in seeing more value in a strong executive branch of government than in checks and balances. Financial markets do not like Trump’s actions much, but there is no sign of the sort of meltdown that is likely to get the president to reverse course. While we wait for the courts process to resolve matters, there is little doubt that the Fed’s path of least resistance is to bend economic arguments towards the president’s beliefs. Fed chair Jay Powell has already indicated the Fed will cut rates in September, well before the tension between inflation and labour market risks is resolved and we can expect further dovish tilts to come from the Fed. It is not a full-blown end to independence, but a slow demise in which the risks to US inflation can only grow. Rates will be lower, markets might be happier for a while, but the risks grow. And when there is the next financial crisis, the world will miss a fully independent Fed, ready to lend dollars to the world when these are in shortage. There can be no guarantee that the Fed will continue such actions if Trump is calling the shots.The case of one Fed governor is not that significant on its own. But it is no exaggeration to say that the Fed’s independence and role in the international financial system could hang on Cook’s fate and experience with US judges. We should wish her well. [email protected] video info More