Trump is making strides in his takeover of the Fed

On Capitol Hill, Trump’s pick to fill a vacant seat on the Fed’s board faced questioning over an unprecedented plan to keep a White House job while serving on the Fed. A few blocks away, government lawyers defended in federal court the first-ever attempted presidential firing of a sitting Fed governor.

Both Stephen Miran’s expected confirmation and Fed governor Lisa Cook’s legal challenge are racing toward the Fed’s Sept. 16-17 meeting, where policymakers are expected to consider cutting interest rates—a move Trump has repeatedly demanded.

Trump last month tapped Miran, chairman of the White House Council of Economic Advisers, to fill a seat that became vacant on the Fed’s board when Adriana Kugler, an appointee of former President Joe Biden, resigned unexpectedly.

On Thursday, Miran repeatedly pledged to act independently as a Fed governor. Democrats argued those promises were meaningless after their questioning revealed an unusual proposal where Miran wouldn’t resign from his White House job, but rather would take unpaid leave from the CEA so that he could return later. The Fed seat Miran would fill has a term that runs through January.

Miran said that if he were to be nominated to a term that is longer than “just a handful of months, I would absolutely resign."

The arrangement would mark the first time since the creation of the modern Fed in the 1930s that a sitting member of the executive branch would join the Fed’s rate-setting committee. Miran himself last year co-wrote a paper decrying the “revolving door" between the executive branch and the Fed. One of Miran’s proposed reforms was a ban on any Fed board member serving in the executive branch for four years after their Fed term. Miran said Thursday his positions weren’t inconsistent because his proposals are meant as a complete package.

The unprecedented dual role would erode the independence of any Fed governor who agreed to it, said Mark Spindel, an investment manager who co-wrote a history of Fed independence.

“You’d have to recognize that if you do the wrong thing, you could lose your ability to go back to the White House. The president would have leverage over you that he doesn’t have over any other governor," he said.

Democrats said Miran’s indirect answers to basic questions about whether Trump had lost the 2020 election or whether job data had been rigged to help Democrats in the election last year further underscored their concerns that he wouldn’t act independently.

They said refusing to resign the CEA post would create a direct conflict between serving as an independent central banker and staying in the president’s employ. “For you to suggest that the president would somehow welcome you back with open arms at the Council of Economic Advisers, should you vote in a way that is opposed by the president of the United States, is just not credible in any way," Sen. Chris Van Hollen (D., Md.) told Miran.

Sen. Jack Reed (D., R.I.) called the arrangement “ridiculous" and said Miran’s independence had “already been seriously compromised."

Republican senators in interviews after the hearing largely accepted Miran’s arrangement. “If it were for longer than four months, it might be an issue, but I understand where he’s coming from," said Louisiana Sen. John Kennedy.

Kennedy said Miran had demonstrated he would be a “very intelligent, capable" central banker. “No fair-minded person could have sat through this hearing today and conclude that he’s anything other than an academic and a professional," he said.

Sen. Mike Rounds (R., S.D.) said that although he hadn’t been previously aware of the plan and that it surprised him, it shouldn’t be disqualifying.

If Trump’s challenge to Fed independence appeared to succeed in the Senate, it faces an uncertain fate in the courts, where Cook last week pushed back against Trump’s effort to fire her from the Fed’s board over allegations that she committed mortgage fraud. She has sought an order that would allow her to remain on the Fed’s board pending the resolution of her lawsuit.

The Wall Street Journal reported Thursday that the Justice Department has opened a criminal investigation centered on allegations that Cook, before becoming a Fed governor in 2022, took out two mortgages, weeks apart, for homes that she separately said would be primary residences.

Cook’s lawyers have said she didn’t commit mortgage fraud but haven’t provided a detailed explanation to clarify the circumstances around the mortgages.

The Supreme Court earlier this year hinted that Fed governors could only be replaced “for cause" and not over a policy dispute. It isn’t clear whether the misconduct that Cook is accused of meets that standard. In a legal filing on Thursday, lawyers for Trump said the government didn’t need to prove she had committed mortgage fraud to remove her from office.

The legal and political uncertainty has created an extraordinary situation: Cook is seeking a court order to secure her vote at the Fed meeting in two weeks, while Republicans are simultaneously seeking to speed through Miran’s confirmation so he can do the same.

The White House has argued that Cook is no longer a Fed governor, but Senate Republicans declined to say Thursday whether Trump was right to dismiss her. “Look, she is a governor on the board of the Federal Reserve," Rounds said in an interview Thursday. “I’ll simply say she’s on the board. She remains on the board."

Kennedy said proving Cook had committed mortgage fraud would be more difficult than proving that she hadn’t accurately filled out her mortgage forms because the former would require proving intent. “Look, it’s not a good thing, OK? Y’all can pretend that it’s not a big deal, but it is a big deal," Kennedy said.

Asked whether a clerical accident warranted removing her from the board, Kennedy didn’t answer directly.

“It should be treated seriously," he said. “If I had been in her shoes, I would’ve overruled any lawyer and said, ‘I’m calling a press conference and I’m going to explain to the American people why the allegations aren’t true.’"

Write to Nick Timiraos at Nick.Timiraos@wsj.com