On August 25, President Donald Trump announced the immediate dismissal of Federal Reserve Governor Lisa Cook, citing a referral to the Department of Justice from Federal Housing Finance Agency Director Bill Pulte on August 15, alleging “mortgage fraud.”
Governor Cook is one of seven members of the Fed Board of Governors, which oversees U.S. monetary policy as the central bank. This independent body plays a crucial role in shaping and executing national economic and financial policies to maintain stability.
This marks the first time a U.S. president has fired a Fed governor, highlighting the escalating confrontation between the two sides. Cook has denied the allegations, asserting that Trump has no authority to remove her and plans to file a lawsuit. This will likely trigger a legal battle that could require the Supreme Court to intervene.
Trump seems to be probing the Court’s stance, following a May ruling that allows the president to remove officials from independent agencies for “cause.” The decision described the Fed as a “quasi-private entity with a unique structure” but did not clarify specifics. Tensions have risen as Trump has sought lower interest rates to stimulate the economy, which the Fed has resisted. He has repeatedly criticized, and even threatened to fire, Chair Powell.
The Federal Reserve Act of 1913 allows the president to remove a governor for “cause,” a term not precisely defined but understood to include incompetence, dereliction of duty, or misconduct in office.
“Everyone agrees that a Fed governor taking a bribe would be removed, no question,” said Yale Law Professor Robert Post to WSJ. “But what exactly constitutes ‘cause’ for removal is critical.” He noted that Cook has not faced any civil or criminal charges. Allowing dismissal based on unproven accusations could render the “for cause” safeguard meaningless.
“The questions for the court are what counts as ‘cause,’ who decides, and what procedures are required for removing a Fed governor,” said Jennifer Nou, law professor at the University of Chicago. “Trump has violated the rules by using an unverified pretext.”
Nevertheless, Politico suggested this is a shrewd move by Trump, as judges, including the Supreme Court, tend to avoid overturning a president’s subjective determination of “cause.”
If the courts do not intervene, Trump could replace Cook with an ally on the seven-member Board of Governors, which he nominates and the Senate confirms. Governors serve 14-year terms and cannot be reappointed.
Cook is one of three governors appointed under Biden, while Trump appointed two of the remaining four. A board aligned on monetary policy could allow Trump to achieve his interest rate goals.
July Fed meeting minutes showed Trump-appointed governors favoring rate cuts, while the other five, including Cook, supported holding rates steady due to weak jobs data and rising inflation.
Trump allies claim Cook’s removal is a trial run, with the ultimate aim being Powell’s dismissal. Harvard Law Professor Jack Goldsmith, former DOJ official, said Trump is acting within legal bounds, and if the court stays out, other mechanisms must check his power.
“In case the court cannot restore standards, the market may have to step in,” Nou observed.
Cook maintains that Trump is seeking a pretext to punish the Fed for not lowering rates. “The president is trying to fire me for ‘cause’ without authority or basis,” she said. “I will not resign and will continue supporting the U.S. economy as I have since 2022.”
“This is a warning to Powell that ‘we also have cause to deal with you,’” said former White House Press Secretary Sean Spicer. “It’s a test, showing ‘we can do it, and here is the standard.’”