Trump says he will fire Federal Reserve governor
President Donald Trump has said that he is firing Federal Reserve governor Lisa Cook.
The unprecedented move would constitute a sharp escalation in his battle to exert greater control over what has long been considered a financial institution independent from day-to-day politics.
Mr Trump said in a letter posted on his Truth Social platform that he is removing Cook immediately because of allegations that she committed mortgage fraud.
The Fed governor said on Monday night that she would not step down.
“President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so,” she said in an emailed statement. “I will not resign.”
Bill Pulte, a Trump appointee to the agency that regulates mortgage giants Fannie Mae and Freddie Mac, made the accusations last week.
He alleged that Cook had claimed two primary residences – in Ann Arbor, Michigan, and Atlanta – in 2021 to get better mortgage terms. Mortgage rates are often higher on second homes or those purchased to rent.
End of Fed independence?
Trump’s move is likely to touch off an extensive legal battle that will probably go to the Supreme Court and could disrupt financial markets. Stock futures declined slightly late on Monday, as did the dollar against other major currencies.
If the US President succeeds in removing Cook from the board, it could erode the Fed’s political independence, which is considered critical to its ability to fight inflation because it enables it to take unpopular steps like raising interest rates.
If bond investors start to lose faith that the Fed will be able to control inflation, they will demand higher rates to own bonds, pushing up borrowing costs for mortgages, car loans and business loans.
Cook has retained Abbe Lowell, a prominent Washington attorney. Lowell said Trump’s “reflex to bully is flawed and his demands lack any proper process, basis or legal authority”, adding, “We will take whatever actions are needed to prevent his attempted illegal action.”
She was appointed to the Fed’s board by then-president Joe Biden in 2022 and is the first black woman to serve as a governor. She was a Marshall Scholar and received degrees from Oxford University and Spelman College, and she has taught at Michigan State University and Harvard University’s Kennedy School of Government.
Her nomination was opposed by most Senate Republicans, and she was approved on a 50-50 vote with the tie broken by then-vice president Kamala Harris.
Legal blockers ahead?
The law allows a president to fire a Fed governor “for cause” which typically means for some kind of wrongdoing or dereliction of duty. The president cannot fire a governor simply because of differences over interest rate policy.
Establishing a for-cause removal typically requires some type of proceeding that would allow the Fed governor to answer the charges and present evidence, legal experts say, which has not happened in this case.
“This is a procedurally invalid removal under the statute,” said Lev Menand, a law professor at Columbia law school and author of The Fed Unbound, a book about the Fed’s actions during the Covid-19 pandemic.
Menand also said for-cause firings are typically related to misconduct while in office, rather than based on private misconduct from before an official’s appointment.
“This is not someone convicted of a crime,” Menand said. “This is not someone who is not carrying out their duties.”