Unlock the White House Watch newsletter for free
Your guide to what Trump’s second term means for Washington, business and the world
Donald Trump’s push to fire a top Federal Reserve official is heading for a high-stakes legal test for the independence of the world’s most important central bank.
Speaking at a televised cabinet meeting that lasted more than three hours on Tuesday, the US president defended his move to fire Fed governor Lisa Cook on Monday, adding that he looked forward to having “a majority very shortly” on the central bank’s board of governors.
However, Trump’s attempt to force Cook out over allegations of mortgage fraud — presented by his ally and frequent Fed critic Bill Pulte — has already hit the first of several likely legal hurdles in a case that could have a profound impact on the Fed’s independence.
Cook’s attorney Abbe Lowell, who previously defended Jared Kushner and Hunter Biden, said on Tuesday that he and his client “will be filing a lawsuit challenging this illegal action”.
“President Trump has no authority to remove Federal Reserve governor Lisa Cook. His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis,” Lowell said in a statement.
Pulte, the director of the Federal Housing Finance Agency, has accused Cook of mortgage fraud, posting documents online that claim she filed two loan applications for mortgages on primary residences within weeks.
The allegations date back to 2021, the year before former president Joe Biden nominated Cook as the first Black woman to serve as Fed governor. Her term is scheduled to stretch to 2038.
Many economists and investors view the attacks on Cook as the latest in a multipronged effort by Trump to seize power from the central bank — which became independent from government in 1951 — in a bid to lower borrowing costs.
Trump did little to dispel those fears on Tuesday, saying: “Once we have a majority, housing is going to swing, and it’s going to be great . . . we have to get the rates down a little bit, and when we do, it’s going to [make] a tremendous difference.”
Investors said if Trump undermines the central bank’s independence, it could push up US inflation and interest rates in the years to come. The difference in two and 30-year Treasury yields, a measure that tracks those expectations, hit a three-year high on Tuesday.
However, the market reaction was muted, with the main US stock indices finishing the day up and the dollar falling just 0.3 per cent against a basket of half a dozen currencies.
Recommended
Should the president succeed in firing Cook it would give him a majority of appointees on the seven-member board of governors.
Christopher Waller and Michelle Bowman were appointed during Trump’s first term, while the abrupt departure of Adriana Kugler has enabled him to nominate one of the White House’s most senior economists, Stephen Miran, to replace her.
The case between Trump and Cook is set to test areas of US law with few precedents. While Fed governors can be fired “for cause”, what this means has rarely been tested by the country’s courts.
While the Department of Justice said it would investigate the claims, it has yet to bring charges against Cook.
“Typically at a minimum . . . if there was to be a ‘for cause’ determination [you’d expect] a substantive finding of wrongdoing, not just an allegation,” said Mark Zaid, a lawyer who has represented federal employees and is suing the president’s office after his security clearance was revoked.
That finding should come from an independent investigation by a law enforcement agency or a civil authority, he added.
However, Zaid said, “it is so rare at this level that this type of situation arises, that even the notion of what constitutes ‘for cause’ during the process is up for grabs”.
The case is expected to end up in the Supreme Court. Earlier this year, the nation’s top court issued an opinion that suggested Fed governors could not be fired by the executive branch for reasons other than cause.
The opinion was taken as a sign that the court’s justices were aware of the risks to the central bank’s reputation — and were willing to uphold its independence.
Recommended
The next step in Cook’s fight against the administration is set to come later this week, when she is expected to file an application for an injunction at the Washington, DC district court. If it succeeds it could give her the right to return to work while proceedings are ongoing.
“Lisa Cook has indicated through her personal attorney that she will promptly challenge this action in court and seek a judicial decision that would confirm her ability to continue to fulfil her responsibilities as a Senate-confirmed member of the Board of Governors of the Federal Reserve System,” a spokesperson for the Fed said.
“As always, the Federal Reserve will abide by any court decision.”
Additional reporting by Aiden Reiter in New York
