Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
In an unprecedented move that has sparked a constitutional and legal battle, Fed Governor Lisa Cook is refusing to step down after being “fired” by President Donald Trump. Cook, the first Black woman appointed to the Fed’s Board of Governors, maintains that the president does not have the legal authority to remove her and that she will continue to carry out her duties.
The conflict began when Bill Pulte, a Trump appointee to the Federal Housing Finance Agency, alleged on social media that Cook had committed mortgage fraud in 2021. Pulte claimed that Cook listed two properties, one in Ann Arbor, Michigan, and one in Atlanta, Georgia, as her primary residence to secure better mortgage terms. Loans for a primary residence often have a lower interest rate than those for second homes or investment properties.
Trump Fires Fed Governor Lisa Cook
President Trump subsequently called for Cook’s resignation, then later announced her immediate removal in a letter posted on his Truth Social platform. He cited her alleged “deceitful and potentially criminal conduct” as “sufficient cause” for her dismissal. However, Cook and her legal team have pushed back, stating that the president’s demands “lack any proper process, basis or legal authority.”
In her statement, Cook said, “I have no intention of being bullied to step down from my position because of some questions raised in a tweet.” She added, “I do intend to take any questions about my financial history seriously as a member of the Federal Reserve, and so I am gathering the accurate information to answer any legitimate questions and provide the facts.”
Cook Refuses to Step Down
Cook, who was appointed by former President Joe Biden, has also questioned the US President’s authority to remove her. “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so,” said Cook. She added, “I will continue to carry out my duties to help the American economy as I have been doing since 2022.”
Cook has hired Abbe Lowell, a high-profile attorney, to represent her. In his statement, Lowell said, “President Trump has taken to social media to once again ‘fire by tweet’ and once again his reflex to bully is flawed and his demands lack any proper process, basis or legal authority.”
He added, “We will take whatever actions are needed to prevent his attempted illegal action.”
Fed Independence Under a Scanner
This standoff hinges on the legal independence of the Federal Reserve. Unlike cabinet secretaries who serve at the pleasure of the president, Federal Reserve governors are appointed to staggered 14-year terms specifically to insulate them from political pressure. According to the Federal Reserve Act, a president can only remove a governor “for cause.” The term “for cause” is legally defined and generally refers to misconduct or dereliction of duty, and requires due proceedings, not just a presidential declaration.
Trump’s attempt to remove Cook is the first time a president has tried to oust a sitting Fed governor. This move could trigger a legal battle that may reach the Supreme Court, potentially setting a major precedent regarding the executive branch’s power over independent government agencies.
Implications of Trump Firing Cook
The removal of Cook, whose term is set to expire in 2038, would open a seat on the seven-member Board of Governors, giving the president an opportunity to appoint a new member who may be more aligned with his economic agenda.
Concerns have been raised by financial market experts and political opponents about the attempt to undermine the Fed’s independence. They argue that the Fed’s autonomy is crucial for maintaining market confidence and effectively managing monetary policy, particularly in combating inflation. The uncertainty created by this unprecedented situation could unsettle financial markets and potentially push up borrowing costs.
Trump Has Been Critical of the Fed
While Trump appointed Powell as the Fed chair, the relations between the two were quite fraught as Powell raised rates during Trump’s first presidency, much to his displeasure. In a 2019 tweet, Trump questioned whether Powell or Chinese President Xi Jinping was “our bigger enemy.”
The president, who advocates for a “pro-growth” agenda, consistently argued in his first term that the rate increases were unnecessary and were hindering economic expansion. He viewed Powell’s actions as a personal affront and a sabotage of his economic policies.
Now, he has been pushing the Fed to cut rates. However, Powell has held back on rate cuts, citing uncertainty from Trump’s tariffs and immigration policies.
Trump has admonished Powell several times for not cutting rates. Earlier this month, he threatened to sue Powell over what he has alleged are irregularities in the construction of the Fed’s headquarters.
In a series of public statements and social media posts, Trump has labeled Powell with a variety of disparaging names, including “too late,” “a major loser,” and “a numbskull.
The conflict has moved beyond simple policy disagreements. On several occasions, Trump has openly floated the idea of firing Powell. While a president can nominate a Fed chair, the law provides significant protections to ensure the central bank’s independence.
Powell Has Stressed Fed Independence
Powell has said multiple times that the Fed acts independently. Speaking at the Jackson Hole Symposium, where he made a dovish pivot, Powell said, “FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach,” said Powell.
He also reiterated the Fed’s commitment to its 2% inflation target and said, “We believe that our commitment to this target is a key factor helping keep longer-term inflation expectations well anchored.”
The ongoing public battle between the president and the central bank chief represents a significant challenge to a long-held tradition of Fed independence. While presidents have historically voiced their opinions, none has done so with the same level of public intensity and personal criticism. The outcome of this unprecedented conflict will likely have lasting consequences for the credibility of the Federal Reserve and the future of US monetary policy.
