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President Donald Trump said Monday night that he’s firing Federal Reserve Governor Lisa Cook, an unprecedented move that would constitute a sharp escalation in his battle to exert greater control over what has long been considered an institution independent from day-to-day politics.
Trump said in a letter posted on his Truth Social platform that he is removing Cook effective immediately because of allegations that she committed mortgage fraud.
Cook said 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. Pulte 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.
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 Monday, as did the dollar against other major currencies.
If Trump 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.”
Cook 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.
Questions about ‘for cause’ firing
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 Cook to answer the charges and present evidence, legal experts say, which hasn’t 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.”
Fed governors vote on the central bank’s interest rate decisions and on issues of financial regulation. While they are appointed by the president and confirmed by the Senate, they are not like cabinet secretaries, who serve at the pleasure of the president. They serve 14-year terms that are staggered in an effort to insulate the Fed from political influence.
No presidential precedent
While presidents have clashed with Fed chairs before, no president has sought to fire a Fed governor. In recent decades, presidents of both parties have largely respected Fed independence, though Richard Nixon and Lyndon Johnson put heavy pressure on the Fed during their presidencies — mostly behind closed doors. Still, that behind-the-scenes pressure to keep interest rates low, the same goal sought by Trump, has widely been blamed for touching off rampant inflation in the late 1960s and ’70s.
President Harry Truman pushed Thomas McCabe to step down from his position as Fed chair in 1951, though that occurred behind the scenes.
The Supreme Court signaled in a recent decision that Fed officials have greater legal protections from firing than other independent agencies, but it’s not clear if that extends to this case.
Menand noted that the Court’s conservative majority has taken a very expansive view of presidential power, saying, “We’re in uncharted waters in a sense that it’s very difficult to predict that if Lisa Cook goes to court what will happen.”
Sarah Binder, a senior fellow at the Brookings Institution, said the president’s use of the “for cause” provision is likely an effort to mask his true intent. “It seems like a fig leaf to get what we wants, which is muscling someone on the board to lower rates,” she said.
A fight over interest rates
Trump has said he would only appoint Fed officials who would support lower borrowing costs. He recently named Stephen Miran, a top White House economic adviser, to replace another governor, Adriana Kugler, who stepped down about five months before her term officially ended Aug. 1.
Trump appointed two governors in his first term, Christopher Waller and Michelle Bowman, so replacing Cook would give Trump appointees a 4-3 majority on the Fed’s board.
“The American people must have the full confidence in the honesty of the members entrusted with setting policy and overseeing the Federal Reserve,” Trump wrote in a letter addressed to Cook, a copy of which he posted online. “In light of your deceitful and potentially criminal conduct in a financial matter, they cannot and I do not have such confidence in your integrity.”
Trump argued that firing Cook was constitutional. “I have determined that faithfully enacting the law requires your immediate removal from office,” the president wrote.
Cook will have to fight the legal battle herself, as the injured party, rather than the Fed.
Trump’s announcement drew swift rebuke from advocates and former Fed officials.
Sen. Elizabeth Warren, D-Mass., called Trump’s attempt to fire Cook illegal, “the latest example of a desperate President searching for a scapegoat to cover for his own failure to lower costs for Americans. It’s an authoritarian power grab that blatantly violates the Federal Reserve Act, and must be overturned in court.”
Trump has repeatedly attacked the Fed’s chair, Jerome Powell, for not cutting its short-term interest rate, and even threatened to fire him.
Forcing Cook off the Fed’s governing board would provide Trump an opportunity to appoint a loyalist. Trump has said he would only appoint officials who would support cutting rates.
Powell signaled last week that the Fed may cut rates soon even as inflation risks remain moderate. Meanwhile, Trump will be able to replace Powell in May 2026, when Powell’s term expires. However, 12 members of the Fed’s interest-rate setting committee have a vote on whether to raise or lower interest rates, so even replacing the chair might not guarantee that Fed policy will shift the way Trump wants.
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Associated Press writer Fatima Hussein contributed.
This story was originally featured on Fortune.com
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