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In today's issue:

▪ Fed drama lands in court

▪ Meet the next MAGA generation

▪ Trump yanks funding for wind projects

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President Trump is expected to get his wish on lower interest rates within weeks, but his brass-knuckled battle with the Federal Reserve will likely drag on much longer.

The president signaled Tuesday he is not backing off his decision to fire Federal Reserve board governor Lisa Cook, who has refused to step down from her position after Trump announced her firing the day prior.

The economist is challenging Trump's move in court, seeking a judicial green light to continue in her Senate-confirmed position until the end of her term in 2038. The Federal Reserve said in a Tuesday statement it would "abide by any court decision."

Trump, who hopes to make his own appointment to the central bank’s board, has pointed to allegations that Cook, the first Black woman on the board, committed mortgage fraud before she arrived at the Fed in 2022 by listing two different primary residences.

The president has spent months working to bulk up his executive muscle by relentlessly testing his policies in the courts, and his move to challenge the Fed's independence is likely to land before the Supreme Court too. The institutional and economic impact of the challenge could last years.

▪ The Hill: Republicans skeptical but quiet on Trump’s attempt to fire a Fed board member.

▪ The Hill: Five questions surrounding the president’s attempted ouster of Cook.

ECONOMIC REPORT CARD: The president’s job approval hovers near 40 percent, considered history’s warning threshold for candidates headed into midterm elections representing the party in power. As Americans wrestle with rising grocery prices, high borrowing costs and shrinking paychecks, Trump chafes at his poll numbers.

In a recent Gallup survey, his 37 percent approval rating on the economy was 15 points below his average of 52 percent on that issue from 2017 to 2020.

Trump’s blistering criticisms have escalated for months as he blamed Fed Chair Jerome Powell for holding interest rates steady instead of lowering borrowing costs to try to tame inflation. He called on the chair to resign.

Powell sidestepped the president and GOP critics in Congress, defended the importance of the central bank’s independence and said he and Fed governors remain focused on supporting the goals of price stability and full employment.

A central bank that was inclined to follow policy decisions by the White House might hesitate to act on price pressures, which could escalate inflation and mean higher long-term interest rates.

Many investors and Wall Street analysts who dissected Powell's speech last week at Jackson Hole, Wyo., are betting the Fed board at its next meeting in mid-September will vote to trim benchmark interest rates by a quarter point.

“The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” the Fed chair said.

COURTS AND CAUSE: Firing Powell, whose term as chair is up in May, or Cook would trigger negative market reactions. An unprecedented presidential firing requires “cause,” which is legally vague but is generally understood to cover gross misconduct.

It’s unclear if Trump’s allegations against Cook, which are tied to the terms of mortgage documents before she joined the Fed and have not been adjudicated, would meet such a threshold. The Fed governor has not been charged with a crime and has said she has no plans to resign.

“President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so,” she said Monday in a statement.

"She seems to have had a legal infraction,” Trump told reporters on Tuesday. “And she can't have an infraction."

The Supreme Court in May in an unsigned majority opinion volunteered that the Fed may warrant special protection for independence. “The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States,” the opinion said.

Democrats have criticized Trump’s attempt at firing Cook. Former Treasury Secretary Larry Summers called the president’s move “chilling.” Senate Minority Leader Chuck Schumer (D-N.Y.) said Trump’s “brazen power grab must be stopped by the courts.” The Congressional Black Caucus also came to Cook’s defense.

“This is going to cause tremors in the foundation that underpins monetary policy in the United States, and those tremors will be felt in financial markets domestically and around the world,” predicted David Wilcox, an economist at Bloomberg Economics and the Peterson Institute for International Economics who previously directed research for the Federal Reserve board.

Smart Take by Blake Burman

The White House could........

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