Trump’s push to overhaul Fed casts long shadow over policy meeting

By Howard Schneider

WASHINGTON (Reuters) -Federal Reserve officials are preparing to gather on Tuesday for a two-day meeting amid rising concerns about the central bank’s independence and uncertainty about the composition of its policy-setting committee, as President Donald Trump pushes ahead with a rushed effort to overhaul a pillar of the U.S. economy.

A federal appeals court is expected to rule on Monday on whether Fed Governor Lisa Cook can continue in her job while litigation over Trump’s attempt to fire her is pending, a ruling that could either upend the Fed’s standing as an institution largely free from executive branch influence in setting monetary policy, or reaffirm it at least for now.

However the court rules, an immediate appeal to the U.S. Supreme Court is expected, adding a further complication to Cook’s status for this week’s policy meeting.

Meanwhile, the U.S. Senate is expected on Monday to confirm Stephen Miran, the head of the White House’s Council of Economic Advisers, to an open seat on the Fed’s seven-member Board of Governors, likely positioning the Trump nominee to be sworn in quickly and participate in this week’s meeting as a voice sympathetic to administration calls for steep rate cuts.

Trump on Monday repeated that call, saying in a social media post in reference to Federal Reserve Chair Jerome Powell that he “MUST CUT INTEREST RATES, NOW, AND BIGGER THAN HE HAD IN MIND. HOUSING WILL SOAR!!!.”

The Fed has been wary to cut rates because of inflation concerns, but it is expected at the conclusion of its meeting on Wednesday to lower its benchmark interest rate by a quarter of a percentage point to the 4.00%-4.25% range, as officials grow more worried about a sharp drop in job growth and rising unemployment.

More cuts may follow in October and December, but at a slower pace than Trump has demanded, with the president’s call for a 1% Fed policy rate seen broadly by economists as out of step with what would be needed to keep inflation stable, absent a recession.

The Fed’s policy decision, however, may be less a focus of the meeting than the expected arrival of Miran and the implications of the coming Cook decision on the central bank as an institution and the direction of U.S. monetary policy.

Trump will also be able to replace Powell when the Fed chief’s term atop the central bank expires next May.

MIRAN’S APPROACH MAY REVEAL TRUMP’S PLANS

In a recent poll by Duke University’s Department of Economics, 24 of 25 former Fed policymakers and staffers said they now saw an “elevated,” “serious” or “extreme” risk that a blow to Fed independence will lead to monetary policy being set too loose and stoking higher inflation – the textbook result expected when elected officials gain sway over monetary policy.