U.S. Federal Reserve Governor Lisa Cook has sued the Trump administration in an effort to overturn the president’s attempt to fire her, launching an unprecedented legal battle that could significantly reshape the Fed’s longstanding political independence.
The lawsuit seeks an injunction to block her firing and “confirm her status” as a member of the Fed’s governing board.
No president has sought to fire a Fed governor in the institution’s 112-year history until Trump posted a letter on his Truth Social platform late Monday saying that Cook was fired. Trump said the reason for her removal were allegations that she committed mortgage fraud in 2021, before she was appointed to the board.
The Supreme Court has signalled that the president can’t fire Fed officials over policy differences, but he can do so “for cause,” typically meaning misconduct or neglect of duty. Most legal experts say that a “for cause” removal requires some type of process that would allow Cook to respond to the charges, which hasn’t happened. Cook has not been charged with any crime.
The law governing the Fed “explicitly requires a showing of ’cause’ for a Governor’s removal, which an unsubstantiated allegation about private mortgage applications submitted by Governor Cook prior to her Senate confirmation is not,” the lawsuit says.
The president’s decision comes as he has repeatedly attacked Fed Chair Jerome Powell and the other members of the Fed’s interest-rate setting committee for not cutting the short-term interest rate they control more quickly. It currently stands at 4.3 per cent, after Fed policymakers reduced it by a full percentage point late last year.
Powell signalled last week that the central bank was leaning toward cutting its rate at its next meeting Sept. 16-17.
Those attacks have opened up the White House to the criticism that its firing of Cook over alleged mortgage fraud is just a pretext to open up another seat on the board for a Trump loyalist. Trump has said he will only appoint people to the Fed who will support lower rates.
The Fed exercises expansive power over the U.S. economy by adjusting a short-term interest rate that can influence broader borrowing costs for things like mortgages, auto loans and business loans.
If the courts ultimately green-light Trump’s firing of Cook, it could erode the Fed’s political independence, which enables it to take unpopular steps like raising interest rates. A less-independent Fed could leave Americans paying higher rates because investors would demand a higher yield to own bonds to offset potentially greater inflation in the future, pushing up borrowing costs throughout the economy.