Cozen Currents: Trump’s Fiscal and Monetary Policy Levers

“President Donald Trump’s broad approach to executive power over fiscal and monetary policy is adding to the sense of economic uncertainty among corporate executives, investors, and consumers.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

• President Trump’s tariffs imposed under the International Emergency Economic Powers Act are nearing the final battle of their legal chapter, after an appeals court ruled the measures to be illegal.
• The White House’s push to exert greater influence over the Federal Reserve’s monetary policy decision making is set to reach a crescendo this fall.
• President Trump’s attempt to unilaterally rescind foreign aid creates greater uncertainty for the FY26 appropriations process in Congress and increases the risk of a government shutdown.

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Tariff Uncertainty

Trump’s Tariffs Face Another Legal Setback. President Trump’s sweeping tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were again ruled to be illegal, with the Trump administration now seeking an expedited ruling from the Supreme Court.

• The 7-4 decision from the US Court of Appeals for the Federal Circuit was the third time that Trump’s IEEPA duties were found to be illegal. Trump relied on IEEPA to impose his universal tariffs as well as the duties targeting China, Canada, and Mexico for their roles in the fentanyl trade. The outcome does not affect the sectoral tariffs Trump imposed under Section 232.
• The Trump administration has already filed an appeal, pushing for the case to be heard in early November despite the Supreme Court having its oral argument schedule already set for October and November. If the court agrees to take the case on this timeline, it could mean a ruling is issued by the end of the year, but the court’s term extends through the end of next June, and typically its most high-profile decisions are issued near the end of its term. However, the longer the process takes, the potentially more complicated an unwinding of the tariffs becomes, which is partly why Trump is pushing for a quicker process. As the case moves forward, the current tariff regime is expected to remain in place, with the recent ruling allowing the duties to continue until mid-October. By this time, the Supreme Court will likely have extended the deadline until it has reached a decision.

IEEPA Isn’t Trump’s Only Tariff Solution. While there is optimism from White House officials about how the Supreme Court will eventually rule, even if the IEEPA tariffs are struck down, there are other authorities at Trump’s disposal that could be used to enact similarly expansive tariff regimes and keep current trade deals in place.

• The most likely substitute authorities for Trump’s use are Section 301, Section 201, Section 122, or Section 338. Still, all of these approaches have drawbacks compared to the president’s relatively unfettered powers under IEEPA. One significant difference is that tariffs under Sections 201 or 301 would require investigations, similar to those pursued by the Commerce Department for the Section 232 tariffs, which would mean these would not be immediate solutions. In contrast, Sections 122 or 338 do not require investigations, which means they could be used to impose tariffs quickly.
• The drawback of Sections 122 or 338 is that they impose rate limits, with maximum rates set at 15 percent and 50 percent, respectively. Additionally, Section 122 tariffs are limited to 150 days without an extension from Congress. Section 201 tariffs are also time-limited, with the duties restricted to a maximum of eight years and required to be renewed after the first four, in addition to undergoing a phasedown after the first year.
• While the comparable speed of Sections 122 or 338 may be appealing to the Trump administration, neither has been used for tariffs previously, which could mean they also invite legal challenges. Still, in its July decision, the Court of International Trade suggested that Section 122 may be the appropriate authority for Trump’s tariffs targeting trade deficits. However, given the limited time period for these duties, the Trump administration may use these as an initial stopgap to then bridge the investigatory period required for Section 201 or 301 tariffs.

A Different Tariff Dividend. Following the most recent ruling against Trump’s IEEPA tariffs, conversation around the possibility of refunds has increased significantly, although this process would likely move relatively slowly, if ultimately implemented at all.

• If ordered, the refund program required from Trump’s IEEPA tariffs would be the largest duty refund program in US history, with the government reporting it had collected $65.8 billion under Trump’s IEEPA tariffs as of late August. It may require Customs and Border Protection to establish new regulations to process the refund requests beyond the current procedure, where importers can file protests with the agency to obtain refunds.
• Part of the reason for the lengthy process expected around refunds, aside from its unprecedented size, is that the Trump administration is likely to drag out the procedures and seek to minimize the amount returned to the extent possible. In addition, the effort to obtain these refunds may result in additional litigation, further slowing down the process of distributing the money.

Fed Uncertainty

A Foot in Both Doors. Former Fed Governor Adriana Kugler’s early departure from her role on the Fed Board gave President Trump a sooner than expected opening to place a candidate of his liking on the influential governing body.

• To serve out the remaining four months of Kugler’s term, Trump nominated Council of Economic Advisors (CEA) Chair Stephen Miran to the Fed Board. The move places a trusted advisor on the Board while leaving the door open for Trump to again utilize the open seat in January to place an outside candidate as Fed chair. Despite a novel arrangement in which Miran will take an unpaid leave of absence from the CEA, instead of resigning outright, GOP lawmakers have indicated that they will support his expedited Committee and floor votes are expected in time to seat Miran before the Fed’s September 16th-17th rate setting meeting.
• While Miran’s addition will bring the total number of Trump-appointed board members to three, it won’t immediately change the course of monetary policy. Trump-appointed members make up a minority on both the seven member Board of Governors and, more importantly, on the 12-member Federal Open Markets Committee (FOMC), blunting their ability to steer the Fed one way or the other.
• Where the White House’s ability to influence the Fed could turn a corner is with the effort to fire sitting Fed Governor Lisa Cook. US District Judge Jia Cobb is expected to issue a ruling in the ongoing legal battle over Cook’s firing in short order, but either losing party is expected to appeal the decision up to the Supreme Court. Although the Supreme Court indicated earlier this year that the president would need “cause” to fire a member of the Fed Board, how the court will rule on the particular rationale for Cook’s firing remains highly uncertain. A ruling removing Cook would give Trump an opportunity to appoint a fourth member to the Fed Board, giving the president’s appointees an outright majority on the influential governing body.

All Fed Politics is Regional. To truly steer interest rate policy though, the White House would need to appoint a majority to the FOMC, a move that would bring the fight over Fed independence to its regional bank presidents and their selection processes.

• In late August, Bloomberg reported that the Trump administration had begun reviewing proposals to exert greater control over the selection of the Federal Reserve’s regional bank presidents. Those members are neither appointed by the president nor confirmed by the Senate. One option would be to indirectly influence the selection process through sitting Fed governors who vote to reauthorize the slate of regional bank presidents every five years.
• The next vote is set for February 2026, giving the White House one shot to influence the regional bank president selection process. The effort will be heavily dependent on a successful ouster of Cook and the creation of a subsequent Trump-appointed majority on the Fed Board, making the fight over Cook’s seat this fall a particularly high leverage issue.
• The capstone to the White House’s project to increase its influence over monetary policy is playing out along a similar timeline, with National Economic Council Director Kevin Hassett telling reporters in late August that the search for a new Fed chair would take another few months. As the Wall Street Journal reports, the White House has deliberately expanded the search in an effort to increase the number of candidates who are publicly advocating for the White House’s preferred monetary policy outcomes. That dynamic is incentivizing Trump to slow down the search process, but as he reiterated in a press conference last week, he’s already narrowed down the candidate pool to Hassett, former Fed Governor Kevin Warsh, and sitting Fed Governor Christopher Waller.

Spending Uncertainty

Pocket Rescission. President Trump is asserting extraordinary executive authority over the power of the purse.

• Late last month, the Trump administration announced the cancellation of nearly $5 billion in foreign aid via the controversial “pocket rescission” technique. This method involves sending a rescission request to Congress within 45 days of the end of the fiscal year. The funding thus expires while still frozen under rescission rules.
• Trump opted to block foreign aid, an area that does not directly impact voters and is less inflammatory than other spending areas. This could make it more challenging for Democrats to go to bat to fight it. Going with a politically easier pocket rescission for his first time deploying this method could also lay groundwork for Trump to leverage it in the future to cancel funding in other areas. In remarks at the National Conservatism Conference last week, Office of Management and Budget Director Russell Vought said that “If Congress has given us authority that is too broad, then we’re going to use that authority aggressively to protect the American people.”
• Trump’s pocket rescission opened a new front in his bid to broaden executive power and creates greater uncertainty around federal spending, particularly FY26 appropriations.

Next Steps for FY26. The ongoing battle over the power of the purse raises the risk of a shutdown.

• Trump’s pocket rescission establishes a more challenging environment for negotiations over a potential FY26 spending deal. If the White House sees funding levels set by Congress as a ceiling rather than a requirement, Democrats have less incentive to strike a deal that Trump may not honor in its entirety. Senate Minority Leader Chuck Schumer (D-NY) faced blowback from his party for supporting a Republican funding bill earlier this year and will likely feel pressure from the Democratic base to fight harder this time around. The result could be a game of shutdown brinkmanship.
• Only a few weeks remain before the end of the fiscal year on September 30th. A full-year FY26 spending agreement is unlikely in these conditions, meaning another year-long continuing resolution (CR), or in practice, a series of CRs, is likely for at least some agencies. House Appropriations Committee Chair Tom Cole (R-OK) reportedly hopes to pass a short-term CR paired with several full-year FY26 spending bills.
• While the White House’s efforts to halt spending have been subject to legal challenges, no major case directly related to the power of the purse has yet risen to the level of consideration by the Supreme Court. Litigation takes a long time to play out, which does not line up with the tight timing of this fiscal year and may possibly not be resolved even before the end of FY26. This prevents lawmakers from having greater certainty about the limits of executive power in relation to spending.

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