To start with the Fed, Piper notes that Trump has made explicit that he believes monetary policy should be his to shape, dismissing the principle of an independent Fed led by nonpartisan economists. His late-night attempt to fire Federal Reserve Governor Lisa Cook — citing obscure allegations of mortgage fraud — has now forced the courts into uncharted territory, testing whether a president can legally purge central bank officials who resist him.
Piper notes that the president can only fire a member of the Board for cause, and the mortgage fraud accusations against Cook may or may not rise to this level. The Supreme Court wrote in an opinion issued in May that the Fed is different in nature from other independent agencies, the bank said. At this point, it’s unclear whether Trump can in fact fire Cook or whether she will remain in her role while her fate is decided. Still, Piper concludes that “the judiciary is no match for Trump’s broader assault on the Fed. If the president is determined to politicize the Fed and Congress won’t stand in the way, then it is going to happen.”
Markets’ recent rally at the prospect of rate cuts is nothing to be celebrated, Piper says, as these cuts have come from political pressure. Piper then recalls how markets were remarkably inefficient and unhelpful during capitalism’s greatest test since the Great Depression. “It didn’t see the housing bust and Great Financial Crisis coming. We find little evidence the market is forward looking or disciplines policy makers.”
Meanwhile, Congress shows little inclination to resist. Few of Trump’s Fed nominees have been rejected by the Senate, despite mounting concerns over their independence. Republicans, wary of crossing Trump, have largely waved through even controversial picks. Stephen Miran is expected to be confirmed as soon as next month — and should Powell step aside when his term as chair expires, Trump will almost certainly get his preferred replacement. It would take only four Republican defections to block any nominee, but Piper Sandler noted, “we’ve seen no appetite to do so.
Perhaps most rattling for Wall Street, Piper Sandler positioned Trump’s Fed fight as merely one piece of a broader dismantling of the economic framework underpinning the long expansion of recent decades. The bank argues that “Decades of freer trade [have] been dramatically reversed overnight.” It sees “the sound money pillar” as being fundamentally compromised by Trump’s assault on the Fed, among other things. Then it lists a litany of stunning an unprecedented developments.
