MICHEL MARTIN, HOST:
President Trump is trying to exert more control over the Federal Reserve.
A MARTÍNEZ, HOST:
One test of that effort will come this morning when a Senate committee holds a hearing on Trump's nominee to fill a vacant seat on the Fed's governing board. In a few minutes, we'll hear from Democratic Senator Elizabeth Warren, a member of that committee. Trump is also hoping to fill a second seat by ousting Fed governor Lisa Cook. That move is being challenged in court. The potential shake-up at the Fed poses a serious threat to the central bank's independence.
MARTIN: NPR chief economics correspondent Scott Horsley is with us now to tell us more about this. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning.
MARTIN: Scott, what are the stakes here? Is this mainly about Trump wanting lower interest rates?
HORSLEY: Interest rates are certainly part of the story, but more broadly, this is about power and who gets to control decision-making at the Federal Reserve. Trump has made no secret of the fact he wants lower borrowing costs, and he's likely to get that wish when policymakers meet in a couple of weeks. That's because the job market is showing signs of softening, and lower interest rates might help to cushion that a little bit. But Trump wants more. He wants to install more of his own people at the central bank. He's nominated a White House economic adviser, Stephen Miran, to fill one vacancy on the Fed's board. And if he's successful in pushing Fed governor Lisa Cook aside, he'll get a chance to put another ally on the board. That would mean four out of seven Fed governors would be Trump appointees. And the president told reporters last week he's looking forward to that.
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PRESIDENT DONALD TRUMP: We'll have a majority very shortly, so that'll be great. Once we have a majority, housing is going to swing, and it's going to be great. People are paying too high an interest rate.
HORSLEY: Now, two caveats - one, the Fed does not directly control mortgage rates. Those are set in the bond market. So this move could actually backfire if investors come to think a Trump-dominated Fed might let inflation get out of control. And two, Congress set up the Fed to be insulated from exactly this kind of political pressure from the White House.
MARTIN: So, Scott, what's your sense of how this is going to play out?
HORSLEY: Right now, the fight's being waged on two fronts. One's in the courts, where Lisa Cook has filed a lawsuit to prevent the president from firing her from the Fed board. Trump and his allies have accused Cook of mortgage fraud, but Cook denies that and says that's just a pretext to muscle her off the board. While that's being sorted out in the courts, the Senate has a chance to weigh in. We will hear, in particular, if any Senate Republicans stand up for Fed independence. They have done so in the past. We will see if they're willing to challenge the president this time.
MARTIN: Is Fed independence likely to come up at today's confirmation hearing?
HORSLEY: Yeah, I'm sure we'll hear a lot of questions, at least from Democrats on the committee. Trump's nominee, Stephen Miran, co-authored a paper last year in which he argued the president should have more control over the Fed's board of governors. Now, he also suggested a ban on people moving from the White House to the Fed, although, obviously, that is not in effect right now. Most other advanced economies have decided it's a good idea to insulate their central banks from meddling by politicians. Fed Chairman Jerome Powell says it just makes for better long-term decision-making.
Powell's own term as Fed chairman runs out next May, and at that time, Trump will have the opportunity to name a new chairman. Powell could remain on the board as a Fed governor, however, through 2028. So far, the Fed chairman has not said whether he plans to stick around that long.
MARTIN: That is NPR's Scott Horsley. Scott, thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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