REFILE-Reuters Econ World: Cook fights back

By Leela de Kretser

Aug 28 (Reuters) - Lisa Cook is determined to fight back. The Federal Reserve governor has filed a lawsuit claiming the president has no power to fire her.

With Abbe Lowell as her attorney, the legal battle is sure to be a blockbuster that could go all the way to the Supreme Court, where a conservative majority has at least tentatively allowed Trump to fire officials from other agencies, though it recently signaled the Fed may qualify for a rare exception from direct control by the president.

Regardless of the outcome of Cook’s case, Trump’s unprecedented attacks on Fed policymakers are emerging as a major threat to central bank credibility. My colleague Francesco Canepa says central bankers worldwide are worried about interference by governments and maintaining the key principle of independence that has helped them keep inflation lower since the mid-1980s.

The fallout has ramifications across economies and markets. European Central Bank policymaker Olli Rehn said it best:

"If the central bank's independence were truly to crumble, and the U.S. Federal Reserve began making decisions on grounds other than sound monetary policy principles — for example, because the president demands lower interest rates — the inevitable consequence would be inflation picking up," Rehn told a panel in Turku, Finland.

For traders, any hint that inflation is not under control is likely to push down the value of long-dated U.S. debt. Tim Graf, head of EMEA macro strategy at State Street in London, said 10-year yields would be below 4% without the concerns on tariffs and the discussion of Fed independence.

Out of Powell’s statements in Jackson Hole, and before Trump’s move on Cook, markets were embracing a quarter percentage point cut to interest rates in September. That is still broadly held as the belief going into the September 16-17 meeting – futures have an 86% probability on it.

But what happens after that is anyone’s guess. Bets that the Fed will accelerate by another half percentage point by the end of the year are 50-50, write economics reporters Ann Saphir and Michael S. Derby. They reported that several Wall Street analysts have told clients they are tearing up prior forecasts.

Carmel Crimmins is out this week, so Leela de Kretser and Kate Turton are writing the newsletter, and Kim Vinnell is hosting the podcast. Carmel will be back next week. If you miss her, please drop her a line on LinkedIn. Or you can listen to the “Shadow Fed chair” episode of Reuters Econ World that she taped back in July.

THE HEADLINES

• How Tesla and Waymo's radically different robotaxi approaches will shape the industry

• Sky-high electricity costs hinder Britain's net zero mission

• American Bitcoin, backed by Trump sons, aims to start trading in September

• India’s Russian oil imports set to rise in September in defiance of US

THE CHART

Fees and levies make up nearly 60% of electricity bills for industrial users.

THE PODCAST

"... after ChatGPT, and particularly as AI systems scaled up and became more powerful, it's been less a question of efficiency or sustainability or similar concerns and more a question of capacity."

Tech Reporter Jeffrey Dastin on the Econ World podcast

Artificial intelligence is burning through electricity. Guest host Kim Vinnell speaks to Dastin, energy correspondent Laila Kearney, and Colleen Howe, who covers China's power industry, about the new energy race between tech giants and intensifying geopolitical rivalries.

THE REAL WORLD

• Ukraine: U.S. envoy Steve Witkoff's report of Vladimir Putin's readiness to make major territorial concessions sowed confusion among allies and triggered a diplomatic race to the anti-climactic Alaska summit, officials told Reuters.

• Washington: U.S. Centers for Disease Control and Prevention Director Susan Monarez has been fired, the White House said, less than a month after being sworn in, and four senior officials have resigned amid growing tensions over vaccine policies and public health directives.

• Kenya: Kenyan human rights activist Boniface Mwangi, who has played a prominent role in anti-government protests, said he plans to run for the presidency in the country's 2027 election.

THE WEEK AHEAD

• August 29: U.S. suspends duty-free shipping

• September 1: Canada to lift tariffs on U.S. goods