"Shadow War" at the Federal Reserve's September Policy Meeting

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A political struggle over control of the Federal Reserve is reaching a boiling point. Next week’s FOMC meeting concerns not only interest rate decisions, but is also a fierce battle over the Fed’s independence.

Nick Timiraos, a Wall Street Journal reporter known as the “new Fed wire reporter”, analyzed that on the eve of the meeting, two parallel legal and political contests will ultimately decide who gets a seat at the decision-making table. The outcome will not only affect the immediate interest rate vote, but also deeply shape market expectations for the future path of monetary policy.

On Tuesday night, a federal judge approved a temporary injunction for Fed Governor Lisa Cook, temporarily blocking President Trump’s attempt to remove her. This ruling is a major legal victory for Cook and the independence of the entire central bank, clearing the way for Cook to attend and vote at next week’s meeting.

Then, on Wednesday morning, the focus shifted to the Senate Banking Committee. Republicans rapidly advanced the confirmation process for Trump-nominated advisor Stephen Miran, aiming to fill another Fed Board vacancy. This move created the possibility of a full Senate vote this week, and if passed, Miran may be able to participate in the same FOMC meeting.

After a series of weak employment data released this summer, the market generally expects the Federal Reserve to cut rates by 25 basis points at next week’s meeting.

Timiraos stated that Cook has consistently aligned with Chair Powell on policy, while it is unclear whether Miran would support a larger rate cut. The struggle over meeting eligibility will determine the composition of the attendees. Its importance lies not only in affecting the immediate vote result, but also in the fact that policymakers will submit new quarterly economic forecasts, which will shape market expectations for the Fed’s future policy path.

Judicial Ruling Temporarily Defends Fed Independence

Last month, Trump attempted to remove Cook on the grounds of alleged “mortgage fraud” before her 2022 appointment, aiming to bypass the legal protections afforded to Fed governors. According to the U.S. Federal Reserve Act, Board members serve 14-year terms and are protected from removal by the President except “for cause”—a provision to insulate decision-making from political pressure.

In response, U.S. District Judge Jia Cobb largely adopted Cook’s legal argument that Trump’s hasty dismissal deprived her of her right to defend herself. The judge ruled that Cook is “very likely” to prevail in the lawsuit, as Trump’s rationale failed to meet the legal “for cause” standard.

Jia Cobb wrote in the ruling that “the initial intention of removal should not be for the President to infer future performance from unverified rumors prior to an official’s appointment.”

The Trump Administration stated in court filings Wednesday that it would appeal the ruling, and the case could quickly move to the Supreme Court.

Trump Advisor Miran’s Nomination Advances Rapidly

Outside of the legal battle, a political sprint is unfolding simultaneously.

According to Timiraos, on Wednesday, the Senate Banking Committee passed Trump’s nomination of Stephen Miran to the Fed Board by a 13–11 vote. Notably, Miran’s nomination process has been exceptionally fast: from the White House’s submission to eligibility for a floor vote, only 8 days passed, while confirmation times for the past eight board members ranged from 72 to 310 days.

The controversy lies in this “unprecedented” personnel arrangement. Miran will take an unpaid leave from his current position as chairman of the White House Council of Economic Advisers to fill a Fed board seat expiring on January 31 next year and plans to return to the White House after his term ends.

Democrats criticize this “dual role” as making a mockery of the Fed’s independence.

Ironically, Miran himself criticized such “revolving door” arrangements between the Fed and the Administration in 2023, arguing that it undermines the central bank’s independence.

He wrote at the time in a social media post that it’s hard to believe someone “can go from being a highly politicized operative to becoming politically neutral just by being promoted. Humans don’t work that way.”

Who Will Shape Decisions and Expectations?

Trump’s unprecedented struggle for control over the Fed is placing the central bank’s independence under severe test.

Timiraos emphasized that since the high inflation of the 1970s, keeping the Fed independent from the executive branch has become a broad consensus. However, in recent years, President Trump has repeatedly criticized the Fed’s interest rate decisions and openly stated that monetary policy should consider the government’s debt financing costs.

For investors, the ultimate outcome of this “shadow war” will transmit directly to the markets.

Timiraos summarized that, in addition to affecting the direct vote on a 25 basis point rate cut or more, what’s more important is that the attendance list will determine who writes the new quarterly economic projections. This forecast document is the Fed officials’ most important tool for conveying their collective view on the economy and the future path of policy to the market.

Risk warning and disclaimerThe market carries risk; investment requires caution. This article does not constitute personal investment advice, nor does it take into account the individual user’s specific investment objectives, financial condition, or needs. Users should consider whether any opinions, viewpoints, or conclusions herein fit their particular circumstances. Investing based on this is at one’s own risk. ```