Federal Reserve Governor Lisa Cook is set to file a lawsuit challenging her removal by President Donald Trump, a move that signifies a major escalation in the ongoing tension between the president and the U.S. central bank.
“President Trump has no authority to remove Federal Reserve Governor Lisa Cook,” stated her lawyer, Abbe David Lowell, in an official statement.
President Trump has asserted that there is “sufficient reason” to believe that Cook made false statements concerning her mortgage. He has also cited constitutional powers, which he believes permit him to remove her from her position.
This unprecedented action comes as Trump has intensified his pressure on the Federal Reserve, particularly targeting its chair, Jerome Powell, due to what he perceives as a reluctance to lower interest rates.
Long-dated U.S. government securities experienced a sell-off on Tuesday, indicating an increased level of perceived risk among investors. This anxiety stems from concerns that Trump’s attempted removal of a Fed governor could erode confidence in the central bank.
If investors begin to question the Fed’s credibility, borrowing costs for the U.S. government could potentially rise. This development would have cascading effects globally, as these rates are used to determine the pricing of assets worldwide.
Cook is one of seven members of the Fed’s board of governors and serves on the 12-member committee responsible for setting interest rates in the U.S.
“His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis,” Cook’s lawyer stated on Tuesday. “We will be filing a lawsuit challenging this illegal action.”
The U.S. president nominates candidates for this role, so removing Cook would pave the way for her replacement with someone more amenable to lower interest rates and the Trump economic agenda.
The Fed’s decisions significantly impact the borrowing rates for Americans and the savings rates on their bank accounts. Moreover, U.S. interest rates are closely monitored by central banks globally as they establish monetary policy in their respective countries.
Cook voted alongside Powell and the majority of the committee members to maintain U.S. interest rates at the Fed’s last rate-setting meeting at the end of July.
Appointed by Trump’s predecessor, Democrat Joe Biden, in 2022, Cook holds the distinction of being the first African American woman to serve in this capacity.
Trump’s decision to remove her is expected to raise legal questions, with experts suggesting that the White House may need to demonstrate, potentially in court, that it had adequate grounds for her dismissal.
Cook stated that 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.
The Federal Reserve has not yet issued a statement regarding the president’s announcement, which was made late on Monday via his social media platform, Truth Social.
According to Trump’s post, Cook signed a document attesting that a property in Michigan would be her primary residence for the upcoming 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 stated.
“It is inconceivable that you were not aware of your first commitment when making the second,” he wrote.
The president’s conflict with Cook and Powell, whom Trump has previously suggested he would like to dismiss for not cutting interest rates quickly enough, also raises concerns about the Fed’s independence from political influence.
Many economists maintain that the Fed and other central banks require independence to effectively formulate financial policy in the public interest.
European markets experienced a slight downturn on Tuesday following Trump’s decision, while the rate that the U.S. government must pay on its bonds, issued to raise capital, increased.
Meanwhile, the U.S. dollar initially declined against major world currencies following Trump’s post but has since recovered.
“[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.
The president had called for Cook’s resignation last week in response to the mortgage fraud allegation, which originated from a public letter from housing finance regulator Bill Pulte, a Trump ally, to Attorney General Pam Bondi.
The housing finance regulator characterized the letter as a “criminal referral” and urged the Justice Department to initiate an investigation. It remains unclear whether an investigation has been opened.
Cook told the BBC last week that she learned of the allegations through the media and that 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 stated, adding that she was “gathering the accurate information to answer any legitimate questions and provide the facts.”
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