In a dramatic escalation of his campaign to gain more control over the nation's central bank, President Donald Trump announced Monday evening that he is firing Lisa Cook, a member of the Federal Reserve's board of governors, amid allegations that Cook committed mortgage fraud.
In a letter to Cook published on his social media platform, Trump declared that he is removing her from her position on the seven-member board for cause. Referring to an accusation made by Federal Housing Finance Agency Director William J. Pulte that Cook claimed two separate properties as her primary residence, Trump said "there is sufficient reason to believe you may have made false statements on one or more mortgage agreements."
Cook said she does not plan to step down. "President Trump purported to fire me 'for cause' when no cause exists under the law, and he has no authority to do so," she said Monday night, per the Associated Press. "I will not resign."
Cook has hired Abbe Lowell, a prominent criminal defense attorney, who said Trump's "reflex to bully is flawed and his demands lack any proper process, basis or legal authority." Lowell said Cook would be filing a lawsuit to challenge Trump's effort.
In a statement Tuesday, the Fed said it would abide by any court decision on the matter. The statement also pointedly noted that the executive has limited power over the central bank: "Congress, through the Federal Reserve Act, directs that governors serve in long, fixed terms and may be removed by the president only 'for cause.' Long tenures and removal protections for governors serve as a vital safeguard, ensuring that monetary policy decisions are based on data, economic analysis, and the long-term interests of the American people."
Serious legal questions: Trump has been pressuring the Fed to lower interest rates, claiming that the central bank's current rate policy is hurting the housing market and raising the cost of payments on the national debt, though critics suspect that Trump may also be interested in cushioning the economy from the negative effects of his tariff policy.
Either way, Trump's move raises serious legal questions about his power to shape the Fed. While the Supreme Court has granted Trump considerable leeway to fire agency heads that had previously been seen as more or less independent, the Fed is a separate issue. The president appoints the members of the Fed's board, but they cannot be removed, except for cause. Trump is claiming that the accusation against Cook provides sufficient cause, but many legal experts are skeptical that a single accusation from a supporter he appointed to his administration provides grounds for removal.
Lev Menand, a Columbia University law professor, told The Wall Street Journal that Fed officials cannot be fired for policy differences, and no president has ever tried to fire a Fed board member for any reason. "We're in pretty uncharted waters," he said.
Still, Trump's effort to fire Cook occurs in a gray area, a zone the president has spent a lifetime successfully exploiting. "The firing of Lisa Cook 'for cause' may be pretextual but is not obviously illegal," Jack Goldsmith, a law professor at Harvard University, wrote on social media. "The big question is how the markets react."
Economic and political issues: Markets showed relatively muted signs of concern Tuesday, with stocks rising modestly as the dollar fell and long-term U.S. bonds sold off, increasing the gap between short and long-term yields. This suggests that investors are worried to some extent about the potential loss of central bank independence, which could mean higher inflation in the long run as political leaders push for looser monetary policy.
"If successful, this [will be] an important dent in central bank independence," Marieke Blom, chief economist at Dutch bank ING, told the Financial Times. "People pay a high price via higher inflation and higher interest rates when central bank independence is lost."
Some saw a more serious threat. "It's a dark day for the central bank," said David Wilcox of the Peterson Institute for International Economics, per The Wall Street Journal. "This is going to cause tremors in the foundation that underpins monetary policy in the United States, and those tremors will be felt in financial markets domestically and around the world."
Trump's political foes sent an unmistakable message of concern. "This attempted firing shreds the independence of the Fed and puts every American's savings and mortgage at risk," Senate Democratic Leader Chuck Schumer said on social media.
Schumer called on the courts to stop Trump's "brazen power grab." Legal experts believe that the issue could well end up in front of the Supreme Court.