Powell Will Hang Separately: The Federal Reserve Has Already Failed its Duty to Lisa Cook and the Constitution

An extremely popular apocryphal anecdote in American politics claims that when the Declaration of Independence was signed Benjamin Franklin said “we must all hang together, or most assuredly we shall all hang separately”. It doesn’t seem to be true, having first surfaced more than 50 years after the signing of the declaration of independence. Yet it has had staying power. This staying power comes from a fundamental truth that it artfully expresses: opponents to a powerful force are easily picked off one by one and the only way to avoid that fate is to stand together and defend one another. 

So much in our culture suggests an understanding of this. Whether it's this apocryphal Franklin quote, Niemöller’s “First They Came” poem or contempt for British prime minister Neville Chamberlain and his policy of appeasement, Americans are inculcated with a sense that solidarity- even solidarity across ideological differences and deeply felt disagreements- are the key to defeating authoritarianism. Yet despite having constantly been seeded with this fundamental lesson, the second Trump administration has been marked by a remarkable failure of spine across all the institutions in the United States. The early sign that American institutions would engage in systematic appeasement towards Trump in his second term was the eagerness for the most powerful law firms in the country to quickly concede to Trump and enter “agreements” with his administration. 

The Federal Reserve System has not been the most craven of the powerful institutions who have attempted to placate Trump to defend themselves, but it has not been the bravest institution either. As I discussed last Friday, they were quick to concede to Trump on financial regulatory issues in the hopes that would get Trump off their back. They also ignored the attack on the legal architecture propping up independent administrative agencies in the hopes that other agencies would receive the brunt of Trump’s wrath. This is a choice to “hang separately” in the hopes that the Fed won’t hang at all. In short, the Federal Reserve has not had a particularly good record the past seven months.

The past two weeks are, however, something different. Trump first posted about the allegations of “mortgage fraud” against Lisa Cook Wednesday August 20th, 9 days ago. This was right on the eve of the most important central banking conference in the world, the Kansas City Federal Reserve conference in Jackson Hole, Wyoming. Federal Reserve chairman Powell’s speech is always the most anticipated speech at this conference and it may have been the most anticipated speech from a Federal Reserve chairperson ever. It was Powell’s final speech at this conference given his term is ending next May. It was anticipated because of what he might say about the Trump administration’s various attacks on the Federal Reserve and government data collection more generally. 

Powell's speech instead was entitled …“Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy”. In many respects it was a speech he could have delivered in 2019. You would never know a fundamental attack on his agency was in the works. Lisa Cook was destined to be fired in short order from the moment Powell stepped away from the podium without coming to her defense- or the defense of his own institution for that matter.

Now Trump has attempted to fire Lisa Cook. Chairman Powell has not said anything in her defense as of this writing. The Federal Reserve Board has given this statement to reporters, which I will publish in full because it is not broadly accessible- itself telling:

The Federal Reserve System was established by Congress to carry out its statutory mandates—including promoting maximum employment, stable prices, and a well-functioning financial system. 

Congress, through the Federal Reserve Act, directs that governors serve in long, fixed terms and may be removed by the president only “for cause.” Long tenures and removal protections for governors serve as a vital safeguard, ensuring that monetary policy decisions are based on data, economic analysis, and the long-term interests of the American people. 

The Federal Reserve will continue to carry out its duties as established by law. 

Lisa Cook has indicated through her personal attorney that she will promptly challenge this action in court and seek a judicial decision that would confirm her ability to continue to fulfill her responsibilities as a Senate-confirmed member of the Board of Governors of the Federal Reserve System. As always, the Federal Reserve will abide by any court decision. 

The Federal Reserve reaffirms its commitment to transparency, accountability, and independence in the service of American families, communities, and businesses. [emphasis added]

This statement is fairly weak and anodyne. 

More importantly, the language regarding Lisa Cook’s lawsuit of the Trump administration suggests that they are not treating her as a governor able to effectuate her duties. I think we would have heard reports if she was locked out of the building. But it's possible that the Federal Reserve is taking a “middle-ground path” where she can come into the building but will not have votes at Board meetings- or, crucially, Federal Open Market Committee meetings (i.e. the meetings where the Federal Reserve sets interest rates). It's notable that Powell and the Federal Reserve Board themselves are “co-defendants” in Governor Cook’s lawsuits. Part of the relief the lawsuit seeks is:

An injunction against the Non-Presidential Defendants ordering that they refrain from effectuating President Trump’s illegal attempt to fire Governor Cook and treat Governor Cook as a member of the Board of Governors

If you work in the Federal Reserve System and have knowledge of Lisa Cook’s current status at the Federal Reserve Board please contact me on signal at username NathanTankus.01 or over email at [email protected]. 

The Federal Reserve’s official statement doesn’t even come close to suggesting that the allegations are false or a pretext. The Trump administration has provided no evidence for its allegations of “mortgage fraud” against Lisa Cook and an individual can have multiple “principal residences”, as President Trump himself has. Recall that the allegation of “Fraud” is simply that Governor Cook took out two mortgages in a relatively short period of time for properties that were both listed as “principal” residences. In federal tax law you can only have one “primary residence” but mortgage law is not tax law and a “principal residence” is not a “primary residence”.

This is, of course, besides the point. Before anyone heard a single detail about the allegations it was obvious they were and are a pretext. But this isn’t going to necessarily be clear to the broad public and certainly not to Wall Street with its lackadaisical approach to the second Trump Administration. That is why I ended my Politico op ed discussing the role of leadership:

This is where the role of leaders come in. Leadership — especially leadership with widespread credibility on Wall Street — can effectively change the game. A particularly respected leader could make the rule of law a far more active part of how the stock market arrives at its conventional wisdom.

The leader I have in mind is, of course, Federal Reserve Chair Jerome Powell.

If Powell does not come to Cook’s defense and continue to treat her as a governor-in-good-standing, he will be the Fed chair who oversaw the destruction of the Federal Reserve’s prized independence. Given the financial industry’s myopic worldview about Trump’s second term so far, Powell’s willingness to defend not just the future of the economy but the rule of law in the United States might be one of the few things that could shake it awake. Powell has a duty not just to the institution he holds dear but to the United States Constitution and the American people to speak forthrightly at this very late hour.

The evidence is that Powell is unfortunately well on his way to sealing the Federal Reserve’s fate.

Powell already made the critical error of “hanging separately” from the rest of the administrative state. The news this week of the attempted firing of the head of the Center for Disease Control emphasizes that there are areas more important than central banking where non-partisan expertise needs insulation from short term partisan political interference. He seems to have made the choice for each governor of the Federal Reserve to now hang separately from each other. Powell will, in turn, hang both separately and alone. 

Unless, of course, he makes the decision to stand up for the rule of law and explain that the attack is not merely on the central bank, but democracy and the constitution. Powell should give a public, primetime television speech explaining the stakes, that the president’s order was legally invalid and that the Federal Reserve system will ignore the order. Federal Reserve Board General Counsel Mark Van Der Weide and the legal division of the Federal Reserve Board are no doubt advising Powell that any such bold action would open Powell up to the risk of a “for cause” firing from Trump himself. Their legal analysis is sound but their political instincts are wrong. 

When your opponent is Donald Trump you escalate in response to threats; you don’t try to appease him. Powell must do everything in his power to compel the conventional wisdom of market traders to more adequately “price in” the degradation of the rule of law. This must include tying the rule of law and the threats to the constitution to the credibility and standing of the Federal Reserve itself. Powell’s term expires in less than a year anyway. If defending the constitution and his own institution is not worth the risk, what would be? The Federal Reserve has already made the error of letting itself become isolated from the attacks on the rest of the administrative state. Powell can still change course, but time is running out. Federal Reserve Chairman Powell: hang together with Lisa Cook.