On Monday, U.S. President Donald Trump announced the firing of Federal Reserve Governor Lisa Cook, citing alleged improprieties in obtaining mortgage loans. This unprecedented action could test the limits of presidential power over the independent central bank, especially if challenged in court.
In a letter to Cook, the first African-American woman to serve on the Fed’s governing board, Trump stated that he had “sufficient cause to remove you from your position” because Cook had allegedly misrepresented her primary residence on two separate mortgage loan applications in 2021 for properties in Michigan and Georgia.
Cook, who was appointed by former U.S. President Joe Biden in 2022, quickly responded through her lawyer, Abbe Lowell, stating that “no causes exists under the law, and he has no authority” to remove her. “I will continue to carry out my duties to help the American economy,” her statement read. Lowell further said that they would take “whatever actions are needed to prevent this attempted legal action.”
The Federal Reserve Act allows for a sitting governor to be removed “for cause,” a provision that has never been tested in court. While Fed governors’ terms are designed to be longer than a presidential term—with Cook’s term extending until 2038—this clause is now at the center of a potential legal battle.
Legal scholars and historians have weighed in on the issue. Peter Conti-Brown, a Fed historian at the University of Pennsylvania, pointed out that the mortgage transactions in question took place before Cook’s appointment and were already part of the public record when she was vetted and confirmed by the Senate. He argued that the idea of retroactively deeming past actions as a basis for removal is “incongruous with the entire concept of ‘for cause’ removal.”
Trump’s letter accused Cook of “deceitful and criminal conduct in a financial matter” and claimed she lacked the “competence and trustworthiness” to serve as a financial regulator. He cited Article 2 of the U.S. Constitution and the Federal Reserve Act of 1913 as the basis for his authority.
The financial markets reacted to the news with a steepening US Treasury yield curve, indicating investor uncertainty. Yields on short-term notes fell, reflecting a belief that the Fed might lower interest rates, while yields on long-term notes rose, suggesting concerns about the Fed’s ability to control inflation. This market reaction highlights the widespread belief among economists that an independent central bank is crucial for sound monetary policy.
Tim Duy of SGH Macro Advisors commented that the move signals the Trump administration’s “determination to remake the Federal Reserve,” suggesting that the institution may not be as fortunate in this administration as it was in the first.
