At least we know who’s voting.

Unless Donald Trump, flanked perhaps by John Roberts and Pete Hegseth, plans to show up at the Fed and escort her away in handcuffs, Lisa Cook will cast a vote for policy rates on Wednesday. In a testament to the absurdity inherent in Trump’s frantic bid to remove Cook from the Board, she’ll vote for a rate cut, which is to say for the very same lower rates Trump wants, if not for the enormous reduction in policy rates he insists is necessary to save his “booming” economy.

The Justice Department failed in its bid to convince an appeals court to stay an injunction which allowed Cook to continue serving in her capacity as a Fed governor while her lawsuit against Trump and his co-defendant, one Jerome H. Powell, works its way up to the Supreme Court, where the conservative super-majority will almost surely rule against Cook. In a 2-1 decision, the D.C. Circuit Court of Appeals said Trump probably deprived Cook of due process by “charging” her on social media.

As I write these lines, it was still possible Trump could try to convince the Roberts Court to issue an emergency stay to prevent Cook from voting on policy this week, but that seems a lot of trouble. It won’t change the outcome of the meeting and, as noted, Trump will likely succeed in his quest to remove Cook eventually (even if she didn’t commit mortgage fraud). So badgering Roberts to block Cook from participating in the policy proceedings serves no real purpose other than to aggravate everyone involved.

Meanwhile, Republicans rubber-stamped Stephen Miran’s nomination to fill Adriana Kugler’s vacant Board seat. As discussed here over the weekend, no one at the Fed — even the two Board members closely-aligned with him politically — will take Miran seriously. He’s just an informant for Trump. As I joked in the linked article, he’ll probably wear a wire to the meeting, and when he talks everyone in attendance will just see Trump wearing a nerd mask.

The figure above’s from the September vintage of BofA’s Global Fund Manager Survey. “Fed loses independence” very nearly topped the “tail risk” list.

As Bloomberg pointed out, Miran’s raised the specter of a Fed which takes seriously the notion that managing long-term interest rates constitutes a third mandate. There’s some language in the Fed’s statute to support that but… well, look: We know what that is. Miran’s just trying to set the stage for the Fed to get into the business of capping longer end yields because that’s what the Trump administration wants.

I previewed this extensively last month in “YCC: Coming Soon To The Fed?” Here are a few excerpts from that piece, published on August 15:

A Trump Fed Chair will very likely be called upon to buy bonds in the event rate cuts aren’t enough to cap yields from the belly on out the curve. Rate cuts for the hell of them against a deteriorating fiscal trajectory and amid concerns (justified or not) about the rule of law, are a recipe for an unanchored long-end. At the very least, that combination — pro-cyclical, overtly political rate cuts, unfunded tax cuts and mounting evidence of rapid institutional decay — will likely mean un-administered US rates are higher than they would be otherwise. In a deep recession, I assume (I hope) USD duration would regain its haven appeal, but short of a sharp downturn, the market will want extra compensation for the myriad and proliferating risks associated with US government debt. So, if the goal is to cap bond yields such that, for example, mortgage rates come down and the government’s debt service burden doesn’t continue to spiral, you may well end up needing yield-curve control.

Currently, 10-year yields are ~70bps below the January highs amid ongoing concerns about the health of the labor market, in keeping with the idea that USD duration will still be bid in a downturn. But Miran’s casual description of the Fed’s mandate as a three-part commitment which includes “moderate long-term interest rates” was tantamount to an admission that the Fed may be back in the QE business if circumstances warrant, and this time for overtly political purposes.

The issue — there are actually myriad issues, but I’ll focus on balance sheet composition — is that a veritable who’s who of the MAGA marketsphere have argued explicitly for a smaller balance sheet and a shorter WAM. QE, or outright YCC, would be a larger balance sheet and longer WAM, all else equal.

That speaks (loudly) to the idea that your views have to be extremely malleable to last as a Trump official. Maybe today you’re in favor of a smaller balance sheet because that’s part and parcel of a circuitous argument for lower rates (i.e., “Well, lower policy rates help Main Street, but only Wall Street benefits from QE”), but you need to be ready and willing to pivot tomorrow to a pro-QE stance if that’s what Trump decides he wants.

This’ll be a maddening experience for the administration and for a Fed beholden to it. As alluded to above, the more the market suspects that policy’s been co-opted, the heavier the long-end will trade, necessitating increasingly aggressive interventions to cap yields.

In Japan, the BoJ’s enormous footprint in JGBs eventually served to impair market function, and pretty severely. To be sure, the UST market is deep enough to handle even the most aggressive Fed intervention, but I really don’t think Trump wants to be in the business of micromanaging benchmark US yields. That’ll be a nightmarish game of Whac-a-Mole. Or “Mogura Taiji,” as it was known when it originated in Japan.