Trending Now
We have updated our Privacy Policy and Terms of Use for Eurasia Group and its affiliates, including GZERO Media, to clarify the types of data we collect, how we collect it, how we use data and with whom we share data. By using our website you consent to our Terms and Conditions and Privacy Policy, including the transfer of your personal data to the United States from your country of residence, and our use of cookies described in our Cookie Policy.
Analysis
Last Thursday, Brazil’s Supreme Court delivered a historic verdict: Jair Bolsonaro, the far-right former president who tried to overturn the 2022 election, was convicted along with seven close allies for conspiring against democracy and plotting to assassinate his rivals, including President Lula. Bolsonaro was sentenced to 27 years in prison and barred from office until 2060. At 70, he will likely spend his remaining years behind bars.
Last Thursday, Brazil’s Supreme Court delivered a historic verdict: Jair Bolsonaro, the far-right former president who tried to overturn the 2022 election, was convicted along with seven close allies for conspiring against democracy and plotting to assassinate his rivals, including President Lula. Bolsonaro was sentenced to 27 years in prison and barred from office until 2060. At 70, he will likely spend his remaining years behind bars. (Though if he makes it to 105, he might still be viable in American politics.)
The decision was hardly surprising – the only thing unexpected was Justice Luiz Fux's dissent in the five-judge panel. The evidence against Bolsonaro was overwhelming, making a successful appeal unlikely. This marks the first time in Brazil’s history that a coup plotter has been brought to justice – a staggering win for the rule of law in a country that only returned to democracy in 1985 after two decades of military dictatorship.
But anyone expecting this moment to turn the page on the radical polarization of the Bolsonaro era and heal Brazil’s political wounds is in for a rude awakening. If anything, the ruling will deepen Brazil’s existing divides and further erode trust in institutions – courts, the media, political parties – heading into next year’s presidential election. The country remains as hopelessly divided as ever, with 51% of Brazilians approving the conviction while 43% see it as political persecution – reflecting partisan opposition to and support for Bolsonaro.
And also no surprise: US President Donald Trump is pouring gasoline on the fire. Bolsonaro’s friend and ideological ally has called the trial a “witch hunt” and weaponized American leverage to bully Brazil into dropping the charges. Even before the verdict came down, the White House had slapped 50% tariffs on Brazilian goods, revoked travel visas for government officials and Supreme Court justices, and hit Alexandre de Moraes – the lead judge on the case – with Magnitsky sanctions typically reserved for the world’s worst human-rights abusers. Following the conviction, Secretary of State Marco Rubio promised America would "respond accordingly" to what he called an "unjust" ruling. More visa suspensions, expanded Magnitsky sanctions, and potential penalties against state-owned Banco do Brasil are on the way.
But Trump's attempts to help Bolsonaro will continue to do the exact opposite. The ex-president’s son Eduardo, a congressman close to Steve Bannon who moved to Texas and has been lobbying the White House for tougher measures against his own country, is now hugely unpopular at home and faces potential criminal charges. By contrast, President Lula has seized the moment to rally Brazilians around the flag, casting himself as the defender of national sovereignty against Trump and the Bolsonaro clan. His defiance has boosted his popularity and, together with easing inflation, makes him a narrow favorite heading into 2026.
Meanwhile, both countries will lose as US-Brazil relations sink further, especially if Lula’s retaliation leads to a tit-for-tat escalatory spiral. But Brasilia, like most other world capitals, is already hedging away from US leverage – deepening ties with Europe, China, the Middle East, Mexico, Canada, and potentially ASEAN to make sure Washington is less able to hurt it in the future (more on this here). The ultimate casualty may be the century-old partnership between the Western Hemisphere's two largest democracies.
What about a get-out-of-jail-free card? Bolsonaristas have been pushing for an amnesty bill that would pardon everyone involved in the January 8 coup attempt, including the former president. But the bill faces (very) long odds. Never mind that more than half of Brazilians oppose full clemency for Bolsonaro – so does most of the Senate leadership. Plus, the Supreme Court has already signaled that crimes against democracy aren’t pardonable, rendering any blanket amnesty law unconstitutional. Lawmakers might agree to reduce sentences for the 1,600 rank-and-file Jan. 8 rioters in order to break the current congressional deadlock. But, for now at least, Bolsonaro and his inner circle look set to do serious time.
And yet, even from behind bars, the ex-president will remain the undisputed leader of the opposition. He’s still competitive with Lula in hypothetical head-to-head polls, and his martyr status with his base guarantees he’ll be the kingmaker of the Brazilian right in 2026. Whoever he anoints to succeed him will almost certainly make it to the run-off. His goal will be to install someone who is likely to both beat Lula and secure his freedom.
But wait – didn’t I just say that Bolsonaro can’t be pardoned? Yes, but here’s the twist: Though the current Supreme Court says pardons for anti-democratic crimes are unconstitutional, the next president will have a chance to reshape the court’s composition, and Justice Fux's dissenting vote suggests that a different court might view the ex-president’s case more favorably. That means Bolsonaro’s path to freedom may depend less on today’s legal rulings than on the outcome of the next election.
So, who will get the nod to lead the right in 2026? Bolsonaro is torn between loyalty and electability. His first choice, a family member (whether one of his three sons or his wife, Michelle), guarantees the former but is a tougher sell to swing voters, especially given their associations with Trump's politically toxic penalties. The other option is São Paulo Governor Tarcísio de Freitas, who has real national appeal and polls better against Lula. Popular, pragmatic, and disciplined, Freitas has been making all the right noises for the convicted ex-President, criticizing the court, pushing Congress for amnesty, and vowing to pardon Bolsonaro on day one. Justice Fux’s dissent strengthens the case, however thin, for Freitas to argue that he’s better placed to negotiate a future pardon with a reconstituted Supreme Court and therefore that he’s Bolsonaro’s best shot at freedom.
Yet Bolsonaro also knows that if Freitas backtracks on his promise or his pardon hits a judicial wall, the former president could be left to rot in jail while his successor consolidates power. That’s why, even if Freitas looks like the logical choice today, Bolsonaro will likely keep his cards close to his chest right up to the filing deadline, when he could go either way.
Brazil’s democracy emerged from its coup attempt stronger than before. Institutions held firm, justice was served, and the rule of law carried the day. That’s more than the United States can say. But it’s only half the battle. Courts can send a former president to prison; they can’t send him into political oblivion or unite a country that’s split right down the middle. Bolsonaro may spend the rest of his life behind bars, but his influence – and the nation’s bitter divides – will continue to shape Brazilian politics for years to come.
Major western countries are going to recognize Palestine for the first time. Here’s why it matters.
As leaders from around the world arrive in New York for this year's United Nations General Assembly, one of the thorniest global issues hangs over the proceedings.
“Palestine is going to be the elephant in the room,” said Palestinian ambassador to the UN Riyad Mansour during an interview with GZERO this week in New York.
That’s because in the coming days several major Western powers are set to recognize Palestinian statehood for the first time. France, the United Kingdom, Canada, Australia, Belgium, Luxembourg, and Malta will all take this step.
What does it mean to recognize Palestinian statehood? Palestine exists in a paradox: it enjoys international recognition from nearly 150 countries, which allows it to field Olympic teams, maintain diplomatic missions abroad, and participate –partially, as an observer state – at the UN. Yet it lacks agreed upon borders, an army or capital, or full sovereignty under Israel’s ongoing occupation. France, in its announcement of its intention to recognize Palestine, said it was doing so to “reaffirm the Palestinian people’s right to self-determination.” It also stressed that it was recognizing Palestinian Authority (PA), which is based in the West Bank, rather than Hamas, which rules Gaza, as having sovereignty over all of the Palestinian territories, because the PA “has come out strongly in favor of the two-State solution and peace.”
Why are they recognizing Palestine now? All of these countries have historically showed strong support for Israel, and none of them voted in favor of Palestine’s UN observer status more than a decade ago. But the scenes of starvation in Gaza and mounting anger over the ferocity of Israel's prolonged military campaign in response to the Oct. 7th attacks, have shifted public opinion in many of these countries. In the UK, polling has showed increasing sympathy for Palestine over Israel, rising from 15% following the Oct. 7 attacks to 37% as of July of 2025. Meanwhile, support for Israel has fallen to 15%, with 51% of Britons saying that its actions are unjustified.
“Millions of people in these nations are pressuring their governments to do more in order to stop the genocide,” says Mansour, “to recognize the legitimate national rights of the Palestinian people to self determination, to statehood and the right of the refugees.”
Israeli Prime Minister Benjamin Netanyahu, however, has said recognizing a Palestinian state "rewards Hamas's monstrous terrorism and punishes its victims." The US ambassador to Israel Mike Huckabee said that "what destroyed the negotiations for the hostages was the European nations going and having this push for a unilateral recognition of a Palestinian state... it destroyed negotiations."
The US, consequently, has denied visas for over 80 Palestinian representatives, including Palestinian Authority President Mahmoud Abbas. The White House says Palestinian officials have undermined Gaza negotiations by appealing to international criminal courts that have accused Israel of war crimes and by seeking UN recognition.
Will this recognition have a real effect? Not on the ground, at least not immediately. The UN as such exerts little influence over Israel.
But the fact that powerful G7 countries have taken this step for the first time does signal a changing tide of opinion in the West, in particular among some of Israel’s staunchest backers.
It also gives Palestine the support of four of the UN Security Council's five permanent members – France, the UK, China, and Russia. That leaves the US, Israel's strongest ally by far, in a minority of one.
The moves come as Gaza negotiations are more stalled than ever. The Israeli military invaded Gaza City yesterday, and last week killed several senior Hamas leaders involved in negotiations in Qatar. Meanwhile, Hamas has shown no willingness to release the remaining Israeli hostages before there is a ceasefire.
Recognition or not, Mansour says a ceasefire remains the most important priority. “A ceasefire saves lives and potentially allows for the release of the hostages, but the continuation of the war takes lives and threatens the lives of the hostages.”
Supporters of main opposition Republican People’s Party (CHP) attend a rally to protest against the arrest of Ekrem Imamoglu, the mayor of Istanbul and main rival of President Tayyip Erdogan, a day after the removal of the CHP's Istanbul provincial head Ozgur Celik by a court over alleged irregularities in a 2023 CHP provincial congress, in Istanbul, Turkey, September 3, 2025.
After a weekend of mass protests in Turkey, a court in Ankara has postponed its decision in a highly charged case that could oust Turkey’s main opposition leader – and boost the fortunes of long-time President Recep Tayyip Erdoğan. The case comes amid a crackdown against Erdoğan’s political opponents, hundreds of whom have been jailed on accusations of corruption and terrorism, including Erdoğan’s main rival, Istanbul Mayor Ekrem İmamoğlu. Ahead of elections that must be held by 2028, Erdoğan stands accused of attempting to extend his 22-year hold on power by any means necessary, and at the cost of democracy itself.
What’s the case about?
The case alleges vote-buying and procedural irregularities at the 2023 congress of Turkey's principal opposition party, the Republican People’s Party (CHP), which removed former leader Kemal Kılıçdaroğlu and elected current chairman Ozgur Özel. The court was supposed to rule on September 15, but has now postponed the decision until October 24.
The CHP rejects the corruption claims, with Özel accusing Erdoğan of launching a “judicial coup” in response to his party’s electoral victories in 2024, and rising public support. Erdoğan denies this, but in May he commissioned a redraft of the country’s constitution, raising fears that he intends to manipulate the law to allow him to run for a fourth term.
What could happen if Kılıçdaroğlu is reinstated?
The former leader’s reinstatement could sow conflict inside the party between old guard and new, thereby demoralizing some of its base. On the other hand, such a decision could also backfire and galvanize the opposition, like several of Erdoğan’s other recent moves. İmamoğlu’s arrest provoked the largest protests in Turkey in over a decade, while the spate of opposition arrests and court battles has turned Özel into a popular protest figure as well.
What’s at stake for Turkey?
Electoral freedom. “This is a serious moment that signals a regime change in Turkey from a competitive authoritarianism, in which opposition parties could still win elections, to a kind of hegemonic authoritarianism, in which they are more symbolic and unable to win,” said Seren Selvin Korkmaz, co-founder and co-director of IstanPol Institute, an Istanbul-based think tank.
The West – and the rest – are watching
If Turkey slides towards authoritarianism, it couldn’t come at a worse time for the West. Erdoğan has long attempted to strike a balance between the country’s NATO partners and Russia, notably on the war in Ukraine. But some of his foreign policy positions, including on Israel’s war with Hamas, have distanced Ankara from Western allies. Add to that US President Donald Trump’s recent ultimatum to NATO countries to stop buying Russian oil – which Turkey does – and Greece’s objections this week to Turkey joining the Security Action For Europe, and it’s not hard to see how Erdoğan might find more kinship with Moscow than with Europe or Washington.
The big picture
The court’s decision on October 24 will be part of a larger test for Turkey: can democratic institutions, including courts, elections, and civil rights, survive Erdoğan’s crackdown? Or will they be hollowed from the inside, leaving opposition parties in name only, and Turkish citizens no other option than to take to the streets? More unrest could cause Erdoğan to further curb civil liberties, leading Turkey further down the path of authoritarianism – and away from democratic alliances.
U.S. President Donald Trump holds a letter from Britain's King Charles as he meets with British Prime Minister Keir Starmer in the Oval Office at the White House in Washington, D.C., U.S., February 27, 2025.
As US President Donald Trump travels to the United Kingdom this week, there is an unnerving sense in which the ghost of Christmas past will be greeting the potential ghost of Christmas yet to come. The former imperial power meets with the current global leader at a moment when both countries face an expanding set of domestic and global tests.
Each will be hoping this visit provides an opportunity to convey bonhomie and unity against a landscape that is anything but friendly and settled. All eyes will be on this heavily choreographed visit.
It’s coronation day
In February, just a month into his second term, Trump hosted UK Prime Minister Keir Starmer at the White House. In separate remarks following those sessions, Trump and Starmer extolled the “special relationship” between the US and UK, declaring that it remained “very special” and “true.” The leaders discussed the ongoing conflict in Ukraine and efforts to bring peace by standing “side by side.” The most telling moment, the know-your-audience moment, came when Starmer handed Trump a letter from His Majesty King Charles. Opening it, Trump found it bestowed an invitation to Windsor Castle for a historic second state visit. The invite landed as it was intended, with Trump visibly tickled and honored.
That was February, when the return of Trump was still fresh and the UK, Europe, and the world had so many questions about the future of US engagement. Already at that moment, some of the answers were coming into view. Trump had imposed 10% tariffs on Canada and Mexico – two of the US closest trading partners - and an additional 10% tariff on imports from China. Prime Minister Justin Trudeau was a casualty of Trumpenomics, stepping down after it became clear there were no knots he could tie himself in that would appeal to Trump. Also, by February, the Trump administration had taken steps to dismantle the US Agency for International Development and six decades of US foreign aid policy. The retrenchment in American international funding and soft power raised alarms for food and security programs, health missions, climate and sustainability initiatives.
On security, just days after Starmer handed the King’s letter to Trump, the US president and Vice President JD Vance met with Ukrainian President Volodymyr Zelensky in the Oval Office. The televised conversation devolved from cordial to contentious over the course of 45 minutes. An anticipated deal for Ukrainian natural resources went unsigned, and Zelensky was told he held “no cards.” Within a week, the US sided with Russia on a series of United Nations resolutions marking the third anniversary of the invasion. Europe was put on notice that the US commitment to Ukraine would be elusive.
We’re going to the palace
Seven months on, with Trump arriving in the UK this week, those early February trendlines have only accelerated. On trade, US partners, allies, and nearly everyone else have been “liberated” and hit with individualized “reciprocal” tariffs. On foreign aid, the administration has stayed its course. Just last week the US Supreme Court granted the Department of Justice’s application allowing the administration to continue withholding billions of appropriated foreign aid funding. Inn Ukraine, the conflict appears no closer to a resolution. After innumerable conversations, a Trump-Putin summit in Alaska, and much European handwringing, Russian drones incurred Polish air space last week.
The Trump administration’s ambitions to redefine the US global footprint is a familiar proposition in the UK, which has struggled to find its footing in the aftermath of Brexit. According to policy documents like the Integrated Review Refresh 2023, successive British governments have sought to position the UK for a more active posture on the world stage amidst increasing geopolitical volatility. Thus far, these ambitions have borne few tangible results.
Even as their global trajectories diverge, Trump’s arrival in the UK comes at a moment of domestic precariousness for both countries. From migration pressure to untenable budgets, divisive partisanship, fluctuating political attitudes and concerns over crime, these Transatlantic partners face a long and overlapping list of maladies.
The visuals are meant to be televised.
Against this backdrop, ambitions will be low for Trump’s visit. Neither side is likely to wade into sensitive domestic dynamics like the recent removal of the UK ambassador to the US, or American political violence. Announcements of a nuclear energy accord and promises of UK technology investments by US AI and chip private sector leaders will be the main takeaways, but are really window dressing. What is called for is a show of allegiance, an optical win at a time when other global leaders have themselves been busy.
Collegial images of China’s President Xi Jinping, Vladimir Putin, and Indian Prime Minister Narendra Modi at the Shanghai Cooperation Organisation (SCO) earlier this month grabbed widespread attention. A slew of analysis argued that this was the new world order, evidence that the powerful “rest” were joining forces against “the West.”
While it is not, in fact, the case that India, China, Russia (+ North Korea and Iran) are now locked into an exclusive alliance that will by magnetism bring others into their realm, countries are hedging their bets. With all the grandeur of a royal visit, Trump will be seeking out the spotlight and looking, once again, to rewrite the script.
Brazil’s ex-President Jair Bolsonaro sentenced to 27 years for coup plot
Former president Jair Messias Bolsonaro is inaugurating Route 22 in eight cities in Rio Grande do Norte, starting with the cities of Extremoz, Natal, Parnamirim, and Mossoro, in Natal, Brazil, on August 16, 2024.
Brazil’s Supreme Court has convicted former President Jair Bolsonaro of plotting a coup to stay in power after losing the 2022 election — a historic first in a country that’s lived through 15 coups.
Four of the court’s five justices voted to find Bolsonaro and seven allies, including his running mate and top military officials, guilty of conspiring to overturn the result and hatching a plan to kill their opponent, current president Luiz Inácio Lula da Silva. Bolsonaro, who had already been banned from seeking public office again, has been sentenced to a 27-year prison sentence. He is expected to appeal.
How we got here. Bolsonaro, a former army captain far-right firebrand who was elected president in 2018, spent the 2022 re-election campaign spreading claims of election fraud that were disproven by official investigations. After losing to his leftwing nemesis Lula, his supporters stormed Brazil’s Congress, Supreme Court, and presidential palace on Jan. 8, 2023, demanding the military step in and overturn the results.
In recent weeks, the US has put pressure on Brazil over the trial. Bolsonaro is a close ally – and stylistic emulator – of US president Donald Trump, who has publicly pressured Lula to force the court to drop the charges, threatening high tariffs, sanctions on court justices, and other punitive measures on Latin America’s largest economy.
Those attacks have seemingly backfired – boosting the popularity of the aging and unpopular Lula, who has styled himself as a defender of Brazilian honor and sovereignty. The court justices, meanwhile, appear not to have been swayed by American pressure.
But Bolsonaro’s movement isn’t going away. Eurasia Group Brazil expert Silvio Cascione warns this is not the “turning of the page” many of Bolsonaro’s opponents may hope for. The ruling “crystallizes Brazil’s deep polarization rather than resolving it,” he said. Public opinion is split almost evenly: 43% say the trial was unfair, 51% back the conviction.
“The real concern isn't massive street protests,” Cascione says, “but rather the continued erosion of institutional trust that's been poisoning Brazilian politics for years. Courts, media, and political parties all suffer from a credibility deficit.”
Bolsonaro is still the kingmaker of the Brazilian right. Polls still show he’d be the strongest challenger to Lula in next year’s presidential election, so his endorsement could still shape the race. São Paulo Governor Tarcísio de Freitas has already emerged as a top heir to Bolsonaro’s movement, courting the former president’s base and floating an amnesty bill in Congress.
The conviction is set to roil relations with Washington. US Secretary of State Marco Rubio called the ruling a “witch hunt” and signaled possible retaliation, including sanctions on the justices who voted to convict.
If so, Brazil is unlikely to hit back directly, as an actual trade war with the world’s largest economy – and a major source of investment – could get ugly fast.
But tensions with Washington could still have a political upside for Lula. “In what promises to be a highly competitive race,” says Cascione, “playing the victim of American bullying could actually help Lula
A drone view shows the scene where U.S. right-wing activist, commentator, Charlie Kirk, an ally of U.S. President Donald Trump, was fatally shot during an event at Utah Valley University, in Orem, Utah, U.S. September 11, 2025.
The assassination of 31-year old conservative activist Charlie Kirk at a college event in Utah yesterday threatened to plunge a deeply divided America further into a cycle of rising political violence.
Who was Charlie Kirk? The founder of Turning Point USA, a conservative youth organization active on more than 3,500 college campuses. Kirk built his formidable brand by challenging students, in particular liberals, to open debates on hot-button culture war issues.
An ultra-conservative Evangelical Christian, he advocated for values of faith, family, and patriotism. He held divisive views on race, women in the workplace, gun control, and gay marriage.
A titan in the MAGA movement. Kirk’s outreach to young voters is considered a major reason why Donald Trump won 56% of young male voters in the 2024 election.
The manhunt: The shooter remains on the loose, and nothing is known about their background or motivations. A weapon and other evidence were reportedly recovered near the scene of the killing on Thursday morning.
The context: Violence against prominent political figures is becoming more commonplace in America, and it affects both sides of the political divide. Earlier this year, the Democratic governor of Pennsylvania, Josh Shapiro, survived an arson attack. Two months later, two Democratic state lawmakers in Minnesota were assassinated. Last year, of course, there were two separate attempts on Donald Trump’s life. A recent Marist poll found that 73% of Americans see political violence as a major problem.
The White House response: a crackdown on “the left”? In a four minute special address from the White House, President Trump eulogized Kirk and condemned radicalism and violence. He blamed “the left” – pledging to “find each and every one of those who contributed to this atrocity, and to other political violence, including those who fund it.” This framing has raised concerns in some quarters about a possible wider crackdown on ideological opponents of the White House.
Most politicians on both sides condemned the killing but tensions simmered beneath the surface. Congress erupted into a shouting match over GOP leader Mike Johnson’s call for a moment of silence for Kirk on the same day as a school shooting that went largely unmentioned. Many prominent MAGA influencers and supporters of Trump responded with outrage, blaming Democrats or liberals for the killing, and claiming Kirk as a martyr.
Some Democrats responded to Kirk’s murder with calls for more gun control. But Eurasia Group US expert Noah Daponte-Smith says those are unlikely to make headway. Kirk himself was a staunch opponent of tighter gun laws, once declaring, in typically controversial style, “it’s worth the cost of, unfortunately, some gun deaths every single year so that we can have the Second Amendment to protect our other God-given rights.”
Are things about to get worse? Daponte-Smith says that while an escalatory cycle can certainly still be avoided, “there is a higher potential for more political violence.”Trump's silhouette as a wrecking ball banging into the Federal Reserve.
President Trump has made no secret of his longstanding desire for lower interest rates to juice the economy and reduce the cost of servicing the $30 trillion federal debt. But his attacks on the Federal Reserve will prove self-defeating, driving up borrowing costs for American consumers, businesses, and the federal government.
For months, the president has threatened and insulted Fed chair Jerome Powell for refusing to cut rates, even toying with the idea of firing him over supposed (and nakedly pretextual) cost overruns on the renovation of the Fed’s headquarters. Yet despite the bluster, he has stopped short of the one move advisers warned him could turn financial markets against him: actually sacking him. Why risk it when Powell’s term as chair expires in May, at which point Trump (who appointed him in 2018) will get to select a replacement more willing to do his bidding?
The president even got an unexpected chance to fill a Federal Reserve Board seat last month when Fed governor Adriana Kugler resigned under suspiciously hasty circumstances before the end of her term, allowing Trump to nominate his economic advisor Stephen Miran to succeed her. You’d think that’d be good enough to keep him placated for a while. Not so.
On Aug. 25, Trump posted a letter to Truth Social announcing he was firing Federal Reserve Board governor Lisa Cook over mortgage fraud allegations from before she joined the Fed. This unprecedented escalation – the first attempt to fire a Fed governor in presidential history – followed a politically motivated investigation started by the Federal Housing Finance Agency’s Bill Pulte, a Trump loyalist and donor who has weaponized his government position to make similar accusations against other MAGA political enemies (California Sen. Adam Schiff and New York Attorney General Letitia James).
Cook, a Biden appointee whose term is set to run until 2038, has refused to resign and is contesting the dismissal. The Supreme Court recently ruled that presidents have wide latitude to fire the heads of independent agencies, but it made a point to carve out an exception for the Fed, whose governors can only be removed “for cause.” What that means exactly, no one knows … because no president has ever tried to fire a Fed governor. Until now.
Although the Department of Justice has launched a criminal investigation into the allegations, Cook hasn’t yet been charged with a crime. It’s unclear whether an allegation of malfeasance that predates Cook’s employment at the Fed and is unrelated to her job meets the judicial bar for “cause” set by the Federal Reserve Act. The matter will be decided by the courts, which granted Cook a preliminary injunction last night, allowing her to stay in the job while the case gets litigated.
Of course, this isn't really about mortgage fraud – it's about seizing control of the Fed. Trump’s not coy about the endgame. On Aug. 26, the president bragged that “We’ll have a majority very shortly, so that’ll be great.” Trump already has two appointees on the Federal Reserve Board, Chris Waller (a favorite to succeed Powell as chair) and Michelle Bowman, and he will likely get a third soon once Miran gets confirmed. If the president ultimately succeeds in pushing out Cook, he’ll have appointed four of the board’s seven members, possibly before Powell even steps down.
That wouldn’t be enough to directly control the 12-person Federal Open Market Committee that sets rates. But a four-person Federal Reserve Board majority would have veto power over the appointment of the regional Fed presidents who sit on the FOMC – and those presidents just so happen to be up for reapproval for five-year terms at the end of February in what's normally a rubber-stamp vote, raising the stakes of both the outcome and the timing of the Cook ruling. Not that the administration needs to actually fire every independent-minded dissenter to chill dissent: sometimes, the demonstration effect of seeing some of your colleagues’ lives ruined is enough to sway behavior.
Yet even if Trump succeeds in stacking the FOMC with loyalists (a big if), the president will still struggle to get what he wants most out of this whole enterprise: substantially lower borrowing costs.
The crux of the issue is that the Fed only has direct control over short-term interest rates, but most borrowers care about long-term rates, which are determined by market expectations of future economic growth, inflation, and fiscal policy. The more the president leans on the Fed, the greater the compensation demanded to hold long-term bonds, as investors lose confidence in the Fed’s ability to keep inflation under control no matter the political costs to the president.
Accordingly, the benefits to Trump of pushing for lower interest rates than merited by economic conditions would likely be offset by large and sustained increases in long-term yields. In the worst-case scenario, Trump forces the Fed to set rates inappropriately low, causing inflation to rise and damaging the Fed’s credibility. By the time the president starts feeling the political pain of runaway prices and orders the Fed to reverse course, the genie is already out of the bottle: inflation expectations are unanchored, long-term rates have spiked, and the Fed is forced to print ever more money to pay for the mounting costs of servicing a growing debt pile. This may sound like the story of an emerging market, but it’s becoming suddenly plausible for the United States.
The last time a US president messed with the Fed’s independence was when Richard Nixon strong-armed Fed chair Arthur Burns into keeping rates low ahead of the 1972 presidential election, causing inflation to spike. It took a decade and punishingly high interest rates to get runaway inflation under control and rebuild the Fed’s credibility, long since understood to be a key pillar of America’s world-beating economy and the dollar’s reserve currency status. Most Wall Street leaders understand the risks of going down the same path again, even if they are too timid to speak out publicly against it (with few exceptions).
So why the muted market reaction? Maybe investors doubt Trump can pull this off. After all, we've been down this road with President Trump before – he's been threatening the Fed since 2017 to little effect. Or maybe investors assume he'll back down in the face of any significant bond market fallout – the so-called TACO trade. But what if that market calm emboldens him to push harder? By the time investors wake up, the damage may be done. As Hemingway wrote about bankruptcy, crises happen gradually, then suddenly.
The real irony? Trump is ramping up his Fed attacks just as he's about to start getting the rate cuts he wants – though not for reasons he'll like. Two weak jobs reports show his tariffs, immigration crackdown, and policy volatility are beginning to weigh on the labor market. The Fed will almost certainly cut rates next week, even if not as aggressively as Trump demands given signs of rising inflation.
If Trump truly wants to lower borrowing costs for Americans, he should stop attacking the Fed and start cutting the deficit. Otherwise, the president will head into the midterms with a slowing economy, soaring prices, and higher long-term rates. Turns out not even the world’s most powerful man can bully bond markets into submission.