On Monday, President Donald Trump made headlines by firing Federal Reserve Governor Lisa Cook, an unprecedented action that marks a significant escalation in his ongoing campaign against the independence of the U.S. central bank. In a letter posted on his platform, Truth Social, Trump stated, "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."
CNBC reached out to the Federal Reserve for comments regarding this surprising decision. Trump's dismissal of Cook pushes the Federal Reserve into uncharted territory, raising the possibility of a legal battle that could escalate to the Supreme Court. The Trump administration has accused Cook, who was nominated by former President Joe Biden in 2022, of mortgage fraud, claiming she improperly named two different properties as her primary residence simultaneously.
Federal Housing Finance Agency Director Bill Pulte, a vocal critic of Fed Chairman Jerome Powell, publicly accused Cook of mortgage fraud on August 20. He submitted a criminal referral to the Justice Department regarding her alleged actions. In his letter, Trump cites this criminal referral, asserting that there is "sufficient reason to believe you have made false statements on one or more mortgage agreements." He highlights an instance where Cook signed a document indicating that a property in Michigan would be her primary residence for the next year, only to sign another document two weeks later for a property in Georgia, claiming it would be her primary residence as well.
Trump expressed disbelief that Cook was unaware of her first commitment when signing the second document. Following the emergence of Pulte's claims, Trump quickly demanded Cook's resignation, stating in a social media post that "Cook must resign, now!!!" In a subsequent statement, Cook asserted her intention to remain in her position, stating she would not be bullied into stepping down due to "some questions raised in a tweet."
Two days later, Trump reiterated his intention to fire Cook if she did not resign, describing her actions as "bad." Pulte praised Trump's decision, commending his commitment to combat mortgage fraud. Trump's termination of Cook is likely to lead to a legal showdown, particularly if a judge permits Cook to continue serving while legal proceedings unfold. The Federal Reserve Act of 1913 limits the president's authority to unilaterally dismiss a Fed governor, stating that such action is only permissible for cause. While the law does not specify what constitutes "cause," it has typically been interpreted to mean malfeasance or dereliction of duty.
If Trump succeeds in removing Cook, he would have the opportunity to nominate her replacement, thus reshaping the governance of the Federal Reserve for years to come, as Fed governors typically serve 14-year terms. Notably, Cook is the first Black woman to hold a position as a governor of the Federal Reserve, and currently, two of the seven sitting Fed governors, Christopher Waller and Michelle Bowman, are Trump appointees. In 2017, Trump nominated Powell to serve as Chair of the Federal Reserve, and earlier this year, another vacancy arose when Adriana Kugler stepped down, allowing Trump to nominate Stephen Miran, chair of the Council of Economic Advisors, to fill the open seat.
This firing raises serious concerns regarding the independence of the Federal Reserve under the Trump administration. Trump has consistently criticized the central bank and its chair for not lowering short-term interest rates. Powell has resisted Trump's pressure, even amid threats of dismissal before his term as chair concludes next year. However, during the central bank's annual symposium in Jackson Hole, Wyoming, on August 22, Powell hinted that conditions might warrant interest rate cuts, urging a careful approach moving forward.
Following Trump's announcement regarding Cook, the ICE U.S. Dollar index, which measures the dollar against a basket of major currencies, fell by 0.3%. Additionally, the 2-year Treasury yield, which is sensitive to Federal Reserve decisions, dropped by 4 basis points. Stock futures showed a decline in overnight trading ahead of Trump's announcement, and gold futures experienced a notable increase, gaining 0.3%. This is a developing news story, and readers are encouraged to check back for updates.
