🥛 Trump has launched an attack on the Fed ⚔️

GM. This is Milk Road Macro, the newsletter that breaks down Fed drama like it’s the season finale of Succession.

Here’s what we got for you today:

✍️ Let’s look at Trump’s full frontal assault on the Fed
🎙️ The Milk Road Macro Show: Macro’s Biggest Force: How Changing Liquidity Cycles Drive Bitcoin & The Market w/ Scott Melker
🍪 Japan’s top trade negotiator canceled a US visit, delaying trade talks

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LET’S LOOK AT TRUMP’S FULL FRONTAL ASSAULT ON THE FED

This week, President Trump said he was firing Fed Governor Lisa Cook.

Trump has been attacking the Fed from a variety of angles over recent months.

But this latest move means things are now turning into a full-frontal assault on the Federal Reserve.

While Lisa Cook might be a little-known name outside of nerdy central bank circles - her potential firing could have big implications.

It could mean that Trump essentially gains full control over Fed monetary policy, including interest rate decisions, in the most extreme scenario.

This would shatter any perceived "independence" of the central bank.

Let’s take a look at what’s going on - in (hopefully) simple and easy-to-understand terms…

So, is Lisa Cook being fired?

On Monday, Trump said he was firing Fed Governor Lisa Cook “effective immediately”.

This was achieved through an Executive Order, claiming she can be removed “for cause”.

The alleged “cause” is a criminal referral accusing Cook of false statements on mortgage documents.

It’s important to outline how unprecedented this action is.

Never in the 111-year history of the Fed has a US President fired a Fed Governor.

In a statement, Cook said: "President Trump purported to fire me 'for cause' when no cause exists under the law, and he has no authority to do so. I will not resign.”

A lawyer for Cook said Trump’s move “is flawed and his demands lack any proper process, basis or legal authority - we will take whatever actions are needed to prevent his attempted illegal action”.

Source: Bloomberg

Currently, Cook is not yet actually fired.

The Federal Reserve has publicly stated that her status remains unchanged.

But the situation is unprecedented and is now tangled in a web of messy legal implications and questions.

Speculators on Polymarket currently think it’s unlikely that Cook will leave her role as Fed Governor before December 31 (25% chance).

Source: Polymarket

OK cool - but why is this such a big deal?

The ramifications of a Cook firing could be massive.

Let’s first start with the Federal Reserve Board of Governors.

This is made up of seven members, including the Fed Chair.

All members hold significant sway at the Fed and they all vote on interest rate decisions.

If Cook is removed, Trump will nominate her replacement.

Currently, excluding Fed Chair Jerome Powell, Trump has appointed 3 of the 7 Governors (after he nominated Stephen Miran earlier this month).

So, if he is able to replace Cook, Trump appointees would become a majority on the Board of Governors.

This means Trump would essentially “gain control” of the Board of Governors.

Source: Bloomberg

This potential Governor majority doesn’t mean that Trump appointees would fully control monetary policy.

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LET’S LOOK AT TRUMP’S FULL FRONTAL ASSAULT ON THE FED (P2)

There’s more to this…

There’s another reason why a timely Cook firing could have huge implications.

This has to do with Federal Reserve District Bank Presidents.

This is getting really into the weeds of how the Fed works - but I will try to do my best to explain it in simple terms.

Governors aren’t the only people who vote on interest rate decisions.

The FOMC “voting board”, includes 12 members in total:

The seven Governors discussed above
Plus five Fed Presidents (who aren’t nominated directly by the US President)

However, during February in years ending in 1 and 6 (so, February 2026), the reappointments (or new appointments) of these Fed Presidents take place.

And these reappointments (or new appointments) must be approved by the Board of Governors.

So let’s run through a step-by-step process of what could happen in the coming months:

Trump manages to force out Cook
He then appoints a new Fed Governor replacement, meaning a majority of the Board of Governors are Trump appointees
If this happens before February, Trump could then theoretically dictate which Fed Presidents his Governor appointees should approve
Meaning he could essentially “choose” new Fed Presidents
And so, Trump could theoretically gain full majority control of the FOMC voting board - essentially giving him the ability to directly influence monetary policy decisions

This may be why Trump is so adamant to get rid of Cook quickly (before February).

What could this mean?

There is a lot going on here, things could change or be stalled for a variety of reasons, and it’s not totally clear that this “Trump total Fed control” plan is actually a thing.

But let’s assume it is - and it happens.

What would that mean?

Trump has repeatedly called for drastic interest rate cuts - anywhere from 100bps to 300bps.

Up until recently, this drastic rate cutting seemed unlikely.

However, gaining full control of the FOMC voting board could potentially make these big rate cuts a reality.

Trump wants to slash rates because he thinks it will:

Save the Government “hundreds of billions of dollars” in debt interest expense
Ease mortgage rates and fire up the housing market.

These two goals hinge on rates across the Treasury yield curve falling (lower Treasury yields means less interest expense, and lower longer-term Treasury yields means lower mortgage rates).

But as I explained in a recent newsletter, longer-term Treasury yields may not necessarily follow short-term yields down as rates are cut - they could move in the opposite direction.

The “Bond Vigilantes” could have other ideas, if they believe inflation is too much of a problem.

And this would not help either of Trump’s ambitions.

It’s not quite as simple as just slashing interest rates, because if rate cuts aren’t warranted - the bond market could revolt.

While drastic rate cuts might on the surface appear to be positive for risk-asset markets, the bond market could spook everybody if longer-term Treasury yields start shooting upwards.

So, it’s important to watch the bond market.

Blake Gwin, head of US rates strategy at RBC Capital, said: “We are only a small handful of further developments away from a complete paradigm shift where the President essentially sets monetary policy. Markets have to start seriously considering the consequences for longer-run inflation expectations, future rate volatility and foreign demand for US assets.”

Priya Misra, portfolio manager at JP Morgan, said that if Trump is able to stack the Fed with allies it “could lead to an erosion of Fed independence and a steeper curve as inflation risk should rise”.

Wrapping up

The potential of Cook leaving her role as Governor (either by being dismissed or potentially resigning) opens the door to some big possibilities for Trump.

It would then be entirely feasible for him to gain a full majority on the FOMC voting board by February.

But, of course, just because somebody is a Trump appointee, it doesn’t necessarily mean they will do everything the President tells them to do.

So far, investors seem to be taking these developments in stride.

Longer-term Treasury yields have edged lower, the dollar has strengthened a little bit, and the S&P 500 has moved slightly higher.

No massive market moves.

This suggests only muted reaction to the potential Fed developments, so far.

That’s it for this edition - catch you in the next one!

MONETARY MELTDOWN OR MASTER PLAN? 🚨

In today’s episode, we sat down with Scott Melker to dig into Trump, the Fed, and what shifting macro forces mean for crypto and your portfolio.

Here’s a peek inside:

Why Trump’s plan to reshape the Fed could spark rate cuts by May 2026
How macro cycles (not halving) are now driving Bitcoin’s trajectory
What stablecoins, tokenization, and BlackRock’s moves say about the future of finance
Whether crypto-native builders or Wall Street giants will win the tokenization race

Don’t sleep on this one 👇

YouTube | Spotify | Apple Podcasts

BITE-SIZED COOKIES FOR THE ROAD 🍪

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Apple will launch its “awe-dropping” iPhone 17 at an event on September 9. Goldman Sachs analysts think Apple stock is a good buy ahead of the event.

Japan’s top trade negotiator canceled a US visit at the last minute, delaying trade talks. Washington and Tokyo agreed to set a reduced 15% tariff on imports from Japan in exchange for a package of US-bound investment, but the details remain unclear.