The Firing Spree Continues

By Philip Marey, senior US strategist at Rabobank,

The 10 year US treasury yield has fallen back to 4.22%, after peaking at 4.31% on Tuesday, so the impact of President Trump’s attempt to fire Lisa Cook has remained modest. Meanwhile, Trump is continuing his firing spree.

On Wednesday, he first fired Robert Primus, a member of the Surface Transportation Board, the regulator of the railroad industry, that is weighing the proposed megamerger between Union Pacific and Norfolk Southern. In 2023, Primus, a Democrat, was the only member on the board to oppose a merger between Canadian Pacific and Kansas City Southern. Yesterday afternoon, he received an email from the White House Presidential Personnel Office that his position was terminated, effective immediately, without explanation. He was removed from the Board’s website. However, he planned to challenge his termination. So this is one for the courts again. On Wednesday evening, the White House said it had fired Susan Monarez, the director of the Centers for Disease Control and Prevention (CDC). She has been in office for less than a month, but clashed with Health and Human Services Secretary Robert F. Kennedy Jr. over the CDC’s guidance on vaccines. Monarez was notified by a White House staffer that she was fired. Her lawyers said that only the President himself can fire her, so they reject the notification as legally deficient.

While President Trump’s attempt to fire Lisa Cook is heading for the courts, he is wasting no time in preparing her replacement on the Board. In fact, he wants to announce a nominee soon. On Tuesday he said “we have some very good people for that position.” Keep in mind that Treasury Secretary Scott Bessent is overseeing the selection process for the new Fed Chair. This is providing the White House with a shortlist to fill any vacancy at the Fed, such as those for Governors and regional Fed presidents (although the legal path for the latter remains unclear). What’s more, Trump’s nominee for Adriana Kugler’s seat on the Board, Stephen Miran, could also be directed toward the possible Cook vacancy. As Trump put it on Tuesday: “We might switch him to the other – it’s a longer term.” In the meantime, Senate hearings for Miran’s nomination to replace Kugler are expected next week.

Yesterday, Treasury Secretary Scott Bessent repeated his call for Fed Chair Jerome Powell to conduct an internal review that should include things like Lisa Cook’s mortgage fraud allegations. Talking to Fox Business, Bessent said “I’ve encouraged Chair Powell to do this on an internal basis before there is an external review.”

This week’s events underline our view that the FOMC may continue to resist delivering the amount of rate cuts that President Trump desires this year, but next year it will be increasingly difficult to keep White House influences from policy rate decisions. In the near term, we expect a rate cut in September, and then it depends on the data whether we are going to see a second one before the end of the year. Evidence of higher inflation could delay the Fed this year, while signs of labor market deterioration are likely to strengthen the case for rate cuts. However, next year the data are likely to matter less in monetary policy decisions and we expect the pace of the cutting cycle to pick up. What’s more, as we discussed in our Jackson Hole comment, we are likely see a major overhaul of the Fed. Stephen Miran is not going to the Fed just to vote for rate cuts, more importantly he is sent there by Trump as a quartermaster for the MAGA makeover.

Meanwhile, New York Fed President John Williams, in an interview with CNBC, said that the September meeting is a “live” one. He said that from his perspective every meeting is live, as the FOMC are getting the risks more in balance. Williams, who is a permanent voter in the FOMC, did not indicate whether he would support a rate cut next month. On Monday, he said that the era of low r-star appears far from over, referring to global demographic and productivity trends that have not reversed. This would imply that he still sees ample room for cutting rates.