US President Donald Trump has removed Federal Reserve official Lisa Cook from her position, marking the first time in the central bank’s 111-year history that a president has fired a Fed governor, in a major escalation of his battle against monetary policy.
The president said there was “sufficient reason” to believe Cook had made false statements on mortgage agreements, citing constitutional powers which he claimed allowed him to remove her from the board of governors with immediate effect.
In a defiant response, Cook said Trump had no authority to fire her and vowed she would not resign, setting the stage for a potential legal battle over the independence of America’s central bank.
Unprecedented Presidential Action
Trump announced Cook’s removal late on Monday via his social media platform Truth Social, posting a letter addressed to the Fed governor that cited a “criminal referral” from Federal Housing Finance Agency Director Bill Pulte.
“Pursuant to my authority under Article II of the Constitution of the United States and the Federal Reserve Act of 1913, as amended, you are hereby removed from your position on the Board of Governors of the Federal Reserve, effective immediately,” Trump wrote.
The president’s letter alleged that Cook had signed documents claiming two different properties would be her primary residence within two weeks of each other – one in Michigan and another in Georgia.
“It is inconceivable that you were not aware of your first commitment when making the second,” Trump wrote, adding that the conduct exhibited “gross negligence in financial transactions that calls into question your competence and trustworthiness as a financial regulator.”
Cook Refuses to Step Down
Cook immediately challenged the president’s authority to dismiss her, saying in a statement released through her lawyers: “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so.”
“I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022,” she added.
Cook’s lawyer Abbe David Lowell, a high-profile Washington attorney, said: “We will take whatever actions are needed to prevent [Trump’s] attempted illegal action.”
The Federal Reserve has not yet commented on the president’s announcement.
Mortgage Fraud Allegations
The controversy stems from allegations first made last week by housing finance regulator Bill Pulte, a Trump ally, who called for a criminal investigation into Cook’s mortgage records.
According to Trump’s post, Cook signed one document attesting that a property in Michigan would be her primary residence for the next year. Two weeks later, you signed another document for a property in Georgia stating that it would be your primary residence for the next year,” the president said.
A CNN review of mortgage documents showed that Cook did take out mortgages for two properties, both of which were listed as her principal residence. Listing a property as a “primary” residence can qualify borrowers for lower interest rates.
Cook told the BBC last week that she learned of the allegations from the media, and the matter stemmed from a mortgage loan application she made four years ago, before she joined the central bank.
“I have no intention of being bullied to step down from my position because of some questions raised in a tweet,” she said at the time.
First Black Woman on Fed Board
Cook, who was appointed by Trump’s predecessor, Democrat Joe Biden, in 2022, is the first African American woman to serve on the Federal Reserve Board. She is one of seven members of the Fed’s board of governors, and in this position sits on the 12-member committee responsible for setting interest rates in the US.
The Fed’s decisions affect the rate at which Americans can borrow money as well as the savings rates on their bank accounts. US interest rates are also closely watched by central banks who set monetary policy in other countries.
Cook voted alongside Fed Chair Jerome Powell and most other members of the committee to maintain US interest rates at the Fed’s last rate-setting meeting at the end of July. The federal funds rate currently stands at a range of 4.25% to 4.5%, where it has remained for all five Fed meetings this year.
Market Reaction
European markets opened slightly down on Tuesday following Trump’s decision, while the rate the US government has to pay on its bonds, issued to raise money, increased.
The US dollar initially dropped against major world currencies following Trump’s post but has since recovered. The dollar index fell 0.3% immediately after the announcement.
“[The] key question for markets is if Trump succeeds in replacing Cook, could he reshape the Fed’s composition and how would that impact the market’s perception on US investability?” said Julia Lee, head of client coverage for FTSE Russell.
US stock futures also slid further after Monday’s announcement, with Dow futures falling 100 points, or 0.2%, S&P 500 futures dropping 0.3%, and Nasdaq 100 futures slipping 0.5%. The price of gold, considered a safe haven asset during times of uncertainty, rose 0.45%.
Legal Questions Loom
Many economists believe the Fed and other central banks need independence from political pressure in order to make financial policy in the public’s interest. Under the Federal Reserve Act of 1913, the president can only remove a sitting governor “for cause,” which has historically been interpreted as applying to malfeasance or misconduct, rather than policy disagreements.
Former attorney general Dominic Grieve warned that even without international treaties, courts could still intervene to block removals where lives would be at risk.
Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee, condemned the move as “an authoritarian power grab that blatantly violates the Federal Reserve Act, and must be overturned in court.”
The illegal attempt to fire Lisa Cook is the latest example of a desperate President searching for a scapegoat to cover for his own failure to lower costs for Americans,” Warren said.
Escalating Pressure on Fed
The president had called for Cook’s resignation last week, saying on Friday: “I’ll fire her if she doesn’t resign. What she did was bad.”
The move represents a dramatic escalation in Trump’s ongoing conflict with the Federal Reserve, which he has repeatedly criticised for not cutting interest rates fast enough. Trump has called Fed Chair Jerome Powell “stupid” and said he “hates me,” whilst saying the board “should be ashamed of themselves.”
Cook’s removal comes after months of complaints by Trump about the Federal Reserve’s refusal to cut interest rates as the president has demanded since returning to the White House in January.
On 15 July, Trump asked a group of Republican members of Congress if he should fire Powell, and they agreed he should, according to a senior White House official. However, Trump later publicly denied plans to fire Powell whilst leaving the door open for it to happen, saying: “We’re not planning on doing it. I don’t rule out anything. But I think it’s highly unlikely, unless he has to leave for fraud.”
Independence Under Threat
The unprecedented nature of Trump’s action raises serious questions about the Fed’s independence from politics, a cornerstone of modern central banking designed to ensure monetary policy decisions are made based on economic data rather than political considerations.
David Wilcox, a senior fellow at the Peterson Institute for International Economics who served on the Fed staff, warned: “The damage done to confidence in the US system will not be easily or quickly repaired.”
Mark Spindel, founder of Potomac River Capital and a historian of the Fed, cast Trump’s move as part of “aggressive attempts” to take control of the US central bank, noting that with a majority of the board, there would be “wide latitude to reorganise the system.”
The housing finance regulator Pulte applauded Trump’s move on social media, thanking the president for his “commitment to stopping mortgage fraud and following the law.”
As the situation develops, all eyes will be on the courts to determine whether Trump’s unprecedented action to remove a sitting Fed governor will stand, potentially reshaping the relationship between the presidency and America’s central bank for years to come.
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