By Ann Saphir
(Reuters) -Questions about Federal Reserve independence will take center stage on Thursday, when President Donald Trump’s economic advisor Stephen Miran testifies at a Senate Banking Committee hearing on his nomination to the U.S. central bank’s seven-member governing board.
The hearing, set to start at 10 a.m. EDT (1400 GMT), comes as Trump steps up efforts to exert control over the Fed, whose ability to manage inflation effectively is widely seen as requiring freedom from political influence over interest-rate decisions.
In an unprecedented move last week, Trump said he was firing Fed Governor Lisa Cook and was already weighing possible replacements. Cook sued, arguing that his unsubstantiated claim of mortgage fraud when she was an economics professor was a pretext to illegally oust her for refusing to lower interest rates. She remains at the Fed while the case is pending.
Miran backs Trump’s view that the Fed should slash interest rates and last year wrote a paper arguing the merits of allowing the president to fire Fed governors at will. In written testimony posted on the Senate banking panel’s website ahead of Thursday’s hearing, he said he intends to preserve the Fed’s independence and make decisions based on analysis and what’s best for the economy’s long-term stewardship.
He would occupy a seat unexpectedly vacated last month by Fed Governor Adriana Kugler, serving a term that ends January 31. At that point Trump could renominate him to a full 14-year term or pick another person for the job.
Republican lawmakers have signaled their intent to move quickly on confirming Miran, with a view to getting him in place at the Fed in time to participate in its September 16-17 rate-setting meeting. They control the U.S. Senate Banking Committee and hold 53 seats in the 100-member Senate that must approve of any presidential pick for the Fed. Earlier this year all Senate Republicans voted to confirm Miran as chair of the president’s Council of Economic Advisers, and all Senate Democrats voted against the appointment.
Democrats do not have the numbers to stop or even slow the current nomination process, but have decried it amid what they called, and what observers broadly agree, are Trump’s potentially economically destabilizing attacks on Fed policy autonomy.
“A less independent Fed would likely favor more aggressive rate cuts, reflected by lower rates at the front end of the Treasury yield curve, at the expense of higher inflation, captured by higher rates at the long end of the curve,” Oxford Economics analysts wrote on Friday.
All year the president has tried to get the Fed to cut rates, berating Fed Chair Jerome Powell for not doing so and calling his integrity into question with accusations of mismanaging a multi-year renovation of the central bank’s headquarters.
Though the market reaction to Miran’s nomination and the attempt to fire Cook have so far been somewhat muted, analysts say they expect inflation expectations and longer-term interest rates to rise if the courts back Trump’s view that he has “cause” to remove Cook and replace her with an ally, strengthening his hold over the central bank.
Two Trump appointees from the president’s first term – Fed Vice Chair for Supervision Michelle Bowman and Fed Governor Christopher Waller – dissented against the Fed’s July decision to hold rates steady, preferring a rate cut. Both are said to be under consideration as nominees to succeed Powell as Fed chair when his term is up in May.
With the labor market showing signs of weakening and inflation so far not reigniting from tariffs as Fed policymakers had worried it might, the Fed is seen likely to cut rates next month, though not aggressively as Trump has wanted.
Waller signaled last week that he would not push for a big rate cut at the September meeting unless the job market fell apart.
(Reporting by Ann Saphir; Editing by Andrea Ricci)
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