The Federal Reserve faces an unprecedented attack on its independence after President Donald Trump immediately dismissed Governor Lisa Cook from her position. This marks the first time in US history that a president has used this power against a member of the Board of Governors. Cook faces allegations of mortgage fraud, but she refuses to resign and has hired a renowned attorney. The decision immediately drove down American stocks and sparked a legal battle that could forever change the independence of the central bank.
Trump Accused Cook of Mortgage Fraud
Donald Trump, in his letter published on Truth Social, accused Cook of fraudulent practices in securing mortgage loans in 2021. According to the president, Cook designated a property in Michigan as her primary residence in one contract, while signing a similar declaration for a house in Georgia just two weeks later. The president called such conduct “unthinkable” and emphasized that she must have been aware of her previous commitment.
The president argues that such behavior represents at minimum “gross negligence in financial matters,” which undermines her credibility as a regulator of the American financial system. He refers to a letter from Federal Housing Finance Agency Director Bill Pulte, who called on the Justice Department to investigate Cook for suspected mortgage fraud. The Department subsequently confirmed that it will indeed examine the case of the board member.
Cook Refuses to Resign and Hires Attorney
Lisa Cook, the first African American woman in the history of the Fed’s Board of Governors, categorically refuses to resign. In her statement, she emphasized that the president “has no authority” to dismiss her and promised to continue performing her duties at the central bank.
In her defense, she hired renowned attorney Abbe Lowell, who characterized the president’s move as an “unlawful attempt at intimidation.” Lowell emphasized the absence of due process and legal basis for dismissing the board member:
- Cook has not been charged with or prosecuted for anything
- She intends to document and explain all financial transactions
- The legal team will take steps to halt the president’s interference
Legal Uncertainty Around Authority to Dismiss Fed Governors
The key question of the entire dispute lies in interpreting the law. The Federal Reserve Act of 1913 allows the president to dismiss a board member only “for cause,” but this term is not precisely defined. Traditionally, it has been interpreted as serious misconduct in the performance of duties, not disputes about personal integrity.
Analyst Sarah Binder from the Brookings Institution considers the allegations a “fig leaf,” whose real purpose is political pressure on the central bank. Democratic Senator Elizabeth Warren characterized the president’s move as an “authoritarian power grab.” The dispute will likely end up at the Supreme Court, as no American president has ever dismissed a member of the Board of Governors before.
Fed Attempts to Defend Against Strategic Effort to Control Interest Rates
Behind the legal disputes, however, lies deeper political motivation. The president has long expressed frustration with the Fed’s cautious approach to lowering interest rates. During his first term, he repeatedly threatened to dismiss Chairman Jerome Powell and this year explored support among Republicans for his removal.
Following the recent resignation of Adriana Kugler, he nominated his economic advisor Stephen Miran. If he succeeded in dismissing Cook and appointing a successor, his candidates would gain a majority of four votes against three in the seven-member board:
- Control over key monetary policy decisions
- Ability to pursue more aggressive interest rate cuts
- Weakening of American central bank independence
Markets Responded with Immediate Stock Decline
Political uncertainty immediately reflected in investor behavior. The president’s dismissal caused nervousness in financial markets. American stock indices fell after the announcement – the Dow Jones lost 0.8 percent, the S&P 500 weakened by 0.4 percent, and the tech-heavy Nasdaq by 0.2 percent.
Investors sought safe havens, which helped gold reach two-week highs around $2,680 per ounce. Yields on two-year Treasury bonds, sensitive to expected Fed actions, declined, and the American dollar weakened against a basket of major world currencies including the euro and yen. Analyst Edward Mills from Raymond James warned that “an attack on American central bank independence will be viewed very negatively by markets and increase uncertainty about monetary policy direction.”
Cook in Court: Battle for Fed Independence
The combination of legal disputes and market reactions shows the gravity of the entire situation. Cook will lead a crucial legal battle in federal courts. Her legal team is prepared to challenge the president’s decision, with the outcome having far-reaching consequences for the American financial system.
If the court recognizes the president’s right to dismiss a board member based on disputed allegations, it would mean a fundamental shift in the balance of power and weakening of Fed independence. An opposite verdict would confirm the traditional role of the American central bank as an independent institution and represent a political defeat. The decision could influence American monetary policy functioning for years to come.
