President Donald Trump’s campaign to dominate the Federal Reserve has reached new heights, with his effort to fire Fed Governor Lisa Cook sparking a muted response from markets. While some may find this reaction surprising, it’s not unexpected given the unprecedented pace of Trump’s attacks on the rule of law and constitutional system.
For economists, the independence of the Federal Reserve is sacrosanct, and absolute independence from the president and Congress is seen as crucial for the economy in the long term. However, Trump views an independent Fed as his enemy and has been browbeating Fed Chair Jerome Powell to cut interest rates despite Powell’s public views that the time isn’t right.
Despite Trump’s campaign targeting the Fed, investors have remained remarkably calm, even after threats to fire Powell himself. Traders continue to have undue confidence in the Fed’s capacity to withstand attacks from Trump and are uncertain about the potential consequences of a Trump-controlled Fed. The stock market has recovered quickly from brief dips, with many still holding onto the idea that “Trump Always Chickens Out” (TACO).
The lack of concern among investors is partly due to their conventional wisdom processing habits. They don’t simply buy and sell based on new information but also consider how it fits into their peers’ views of the world. This has led to surprisingly sturdy conventional wisdom, especially when it comes to Trump’s impact on the economy.
However, this complacency may be misplaced. The threat to the rule of law emanating from a second Trump term is not part of investors’ calculations, and the response to such events often fails to become conventional wisdom among traders. The Federal Reserve’s independence is at stake, and its leadership has no special protections against removal.
Federal Reserve Chair Jerome Powell holds significant sway over Wall Street and could change the game with his leadership. If he doesn’t come to Cook’s defense and uphold the Fed’s independence, it may be too late. Powell’s willingness to speak forthrightly on behalf of the economy, rule of law, and the Constitution might be one of the few things that can shake investors awake.
As the stock market continues to react with muted enthusiasm to Trump’s attacks on the Fed, a bigger problem becomes apparent: the lack of concern about the threat to the rule of law. The conventional wisdom among traders is failing them, and it’s time for leaders like Powell to take action.
Source: https://www.politico.com/news/magazine/2025/08/26/trump-lisa-cook-federal-reserve-markets-opinion-00525449