President Donald Trump has ordered the removal of Federal Reserve Governor Lisa Cook, citing a ’cause’ related to Cook’s mortgages. However, this is later contested by experts with the gray area being unclear. How will this impact the crypto market?
Summary
- Donald Trump’s attempt to remove Fed Governor Lisa Cook sparks uncertainty over the independence of the Federal Reserve.
- Uncertainty surrounding the Fed impacts the crypto market and the wider economy.
- The weakening dollar raises concerns for USD-backed stablecoins, which rely heavily on U.S. Treasuries and cash reserves.
In a letter addressed to Governor Cook, Donald Trump ordered for the immediate removal of Cook citing the Federal Reserve Act’s “for cause” removal clause. He went on to spotlight two properties bought by Cook in 2021, one in Georgia and one in Michigan.
According to Cook’s mortgage documents, both houses were listed as her primary residences. This sort of declaration often results in a lower mortgage rate for both properties. Regarding this ambiguity, Cook has yet to provide an explanation.
Though, she has released a statement declaring that she refuses to resign and will carry on her duties at her post.
“President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so,” said Cook in a statement quoted by Reuters.
Considering no president has ever attempted to remove a Fed governor before President Donald Trump, whether or not the firing attempt is legal remains in the gray area. Legally, the law states that “Each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President.”
The phrase “for cause by the President” remains contested by experts who believe the cause would be referring to incompetence, or wrongdoing related to how a member of the Fed performs their duties, instead of the ’cause’ being past actions.
“These officials have been vetted by our President and our Senate, that means that all things that they had done during their times as a private citizen were already vetted,” said Peter Conti-Brown a scholar of the Fed’s history at the University of Pennsylvania to Reuters.
How will Donald Trump’s pressure on the Feds impact the crypto market?
As the ongoing battle continues between Donald Trump’s insistence to fire Cook and Cook’s own resistance to being removed, the U.S. dollar and the wider crypto market may be caught in the crosshairs.
Considering the Feds are responsible for setting the interest rate that could influence trillions of U.S dollars worldwide, Donald Trump’s continued attacks on its board of members could be considered an assault on the independence of the Fed itself.
While Treasury yields dropped, alternative assets like gold and cryptocurrency shot up. Bitcoin (BTC) rose modestly by 0.5% meanwhile Ethereum (ETH) climbed 1.5% immediately after the news broke. This is because many investors saw the pressure as an indication that the Fed may bow to Trump’s expectation for a Fed rate cut.
On the other hand, the same growth has not been seen in the overall crypto market cap dipped slightly by 1.5% to just $3.86 trillion.
Historically, moves made by the Fed have influenced not only the stock market but also the crypto market. After the news went viral, global stocks were unsettled with European and Asian stocks sinking. There was also a decline in U.S. stock futures and added downward pressure on the U.S. dollar.
Are USD-backed stablecoins in trouble?
After Donald Trump posted his letter ordering the removal of Governor Lisa Cook on Truth Social, the U.S. dollar weakened by 0.07% compared to other global currencies. In addition, investors sold long-term US government bonds, pushing the 30-year Treasury yield up by 0.04 percentage points to 4.93%.
As the dollar starts to weaken, so do the stablecoins pegged to the currency. Although they appear stable due to the value being 1:1 with the dollar. Most stablecoin reserves are held in short-term U.S. Treasuries and cash equivalents. If U.S. Treasuries face volatility, stablecoin issuers could struggle to manage redemptions efficiently.
Not only that, if political interference undermines global confidence in the Fed’s ability to manage monetary policy, then the dollar’s credibility itself could be questioned. Considering that the stablecoin market is still dominated largely by dollar-backed tokens like USDT (USDT), USDC (USDC) and PYUSD (PYUSD), Trump’s move could be cause for concern.
