Undermining Independence: The Fed Faces Political Pressure
Invested In Us | Issue 5
In last week’s issue, we highlighted growing centralization of power across key economic institutions—urging investors to monitor shifts that may compromise autonomy. Emerging events now underscore that warning, as President Trump publicly urges the removal of Federal Reserve Governor Lisa Cook, a move that would dramatically reshape the Fed’s governing body.
Lisa Cook, confirmed in 2022 and reappointed in 2023, is the first Black woman to serve on the Federal Reserve Board of Governors. She holds a PhD in Economics from UC Berkeley, built a distinguished academic career—including roles at Michigan State University and the Chicago Fed—and has advised numerous policymakers. Her appointment marked a significant stride for representation and institution-building.¹
On August 20, 2025, President Trump demanded Cook’s resignation following allegations—originating from a referral by the Federal Housing Finance Agency—that she claimed two separate properties as her primary residence when applying for mortgages. Cook has rejected both the substance of the allegations and the legitimacy of any dismissal, asserting that Trump lacks legal authority and promising to continue her service.² Cook’s defenders emphasize that no public evidence or criminal charges have been brought forward.³
Should Cook eventually be removed, and with the expected confirmation of Stephen Miran—Trump’s nominee to fill the vacancy created by Adriana Kugler’s departure—the Board of Governors could consist of five of seven members aligned with Trump’s policy preferences. This would represent further consolidation of control over a historically nonpartisan institution.⁴
Market Shifts: Immediate Ripples and Enduring Risks
As of market close on Monday, the S&P 500 was up 9.48% year-to-date, while the tech-heavy Nasdaq Composite gained 11.07%. The Russell 2000 index rose 4.89%, and the VIX—Wall Street’s “fear gauge”—was down more than 13%, all suggesting markets were positioned positively prior to Trump’s announcement regarding Cook.⁵
Following the news, markets showed mixed reactions. Stock index futures dipped modestly, reflecting concerns over the erosion of central bank independence, while long-term Treasury yields rose, signaling heightened anxiety around potential inflation and instability. The U.S. dollar weakened initially, and gold surged, only to retrace once Cook reaffirmed her refusal to resign.⁶
Equity markets may still interpret the shift as a de facto stimulus—anticipating looser monetary policy as Fed autonomy weakens—potentially driving short-term gains. By contrast, bond markets are less sanguine: rising yields reflect investor unease over inflation risk and the broader implications of a politicized Fed.⁶
Credit Impact: Another Downgrade Looming
The U.S. sovereign credit profile has steadily eroded since the Great Financial Crisis. Standard & Poor’s downgraded the rating from AAA to AA+ in 2011, and Fitch followed suit in August 2023.⁷ Most recently, on May 16, 2025, Moody’s downgraded the U.S. from Aaa to Aa1, citing unsustainable debt trajectories, persistent fiscal deficits, and rising interest servicing burdens.⁸
This downgrade brought Moody’s into alignment with the other two major rating agencies, signaling collective concern about fiscal discipline and governance. Without meaningful reforms, deficits—potentially ballooning to 7–9% of GDP—and a debt burden projected at 134% of GDP by 2035 may strain confidence further.⁸
From an institutional perspective, we remain cautious about the notion of government as an active investor. Historically, public institutions have not been the most efficient capital allocators, and we do not believe government should be in the business of “making deals” to generate revenue. Revenue should be driven by policy, not by strategic equity stakes or transactional interventions. When governments attempt to “pick winners and losers”, the risk is that taxpayer dollars are managed with the same inefficiencies that often characterize bureaucratic agencies-undermining both accountability and long-term fiscal discipline.
Given this fragile backdrop, Trump’s push to exert influence over the Fed—a cornerstone of economic credibility—risks triggering market angst or another downgrade if perceived as undermining institutional integrity.
Institutional Assessment: Echoes of Centralization
At Invested In Us, our institutional posture remains steadfastly balanced: rigorous, principled, and cautious. Last week, we warned of mounting centralization across governance frameworks. Today’s developments confirm that warning: eroding Fed independence, merging policymaking with political expediency, and replacing diverse voices with ideological alignment threaten the very architecture of economic stability.
While the data infrastructure—the BLS, Treasury, Fed—remains among the most transparent globally, this incident underscores the fragility of that structure when political considerations overshadow process.
Parallels to the 1920s — and Lessons for Today
The 1920s and 2020s share striking similarities: surging markets, technological breakthroughs, favorable tax and policy shifts, and a political environment tilting toward more centralized authority. A century ago, those conditions fueled a boom that ended abruptly with a depression and then war. Today, rising debt burdens, deficits, and geopolitical tensions suggest the same structural fragility beneath today’s prosperity.
Investor Perspective
For investors, the pressure on the Fed underscores a recurring theme: governance risk is market risk. While equity markets may view political influence over monetary policy as short-term stimulus, bond markets and credit agencies signal a more sobering outlook — higher yields, heightened inflation expectations, and a steady erosion of U.S. institutional credibility. The strength of the U.S. economy has always been anchored by independent institutions. When that independence falters, volatility follows.
This Week’s Takeaway
Political gains may drive short-term rallies, but sustainable value depends on independent, credible institutions.
Community Spotlight: Your Village Journey
This week we’re spotlighting Your Village Journey, a psychology and wellness hub based in Fairfield, CT. Founded by two clinical psychologists, Dr. Jennifer Doran and Dr. Jennifer Lawson, YVJ offers therapy, coaching, and consulting services — both locally and via telehealth — with one mission: to expand access to mental health and wellness for everyone.
At NJK, we see mental health as a core pillar of the Family Economy Ecosystem, just as vital as housing, education, and community spaces. By providing evidence-based, compassionate care, YVJ strengthens families, equips individuals with tools to thrive, and ultimately builds more resilient, connected communities.
📲 Follow Your Village Journey on Instagram
Explore their blog and additional resources at yourvillagejourney.com 🌱