Control of the Fed Is About Much More Than Interest Rates

"President Donald Trump could be close to taking over the Federal Reserve. On September 9, a federal district judge blocked Trump's effort to remove Lisa Cook as a Federal Reserve governor; on Thursday, the administration petitioned the Supreme Court to allow the firing to go through. If the high court ends up siding with the administration, then Trump will have a clear path to filling the central bank with loyalists willing to vote the way he directs them to."

"So far, most of the hand-wringing over this possibility has centered on Trump's desire to dramatically cut interest rates, which could juice the economy and improve the GOP's political prospects in the short term, but make inflation worse and destroy the Fed's credibility in the long term. But the Fed has far more power than just setting rates; in fact, setting rates is the least of what it can do."

"The Constitution makes clear that Congress, not the president, holds the power to authorize new government spending. But a major exception to this rule exists. In 1932, Congress gave the Federal Reserve the power to lend money to "any individual, partnership, or corporation" during "unusual or exigent circumstances." The Fed used the emergency-lending provision to make a few modest loans during the Great Depression."

A federal judge blocked an effort to remove Fed governor Lisa Cook and the administration petitioned the Supreme Court to permit the firing. A favorable ruling would let the president install loyal Fed governors who follow his directives. Concerns center on potential rate cuts that could boost the economy short-term but worsen inflation and undermine Fed credibility long-term. The Federal Reserve controls money supply, financial-system access, and can create and deploy funds. A 1932 law grants the Fed emergency lending authority, which was used modestly in the Depression and expanded in 2008 and during the coronavirus pandemic.

Read at The Atlantic