US President Donald Trump on Monday said he was firing Federal Reserve Governor Lisa Cook over alleged improprieties in obtaining mortgage loans, an unprecedented step that pushes the boundaries of presidential power over the independent monetary policy body should it be challenged in court.
Trump said in a letter to Cook that he had “sufficient cause to remove you from your position” because in 2021 Cook indicated on documents for separate mortgage loans on properties in Michigan and Georgia that both were a primary residence where she intended to live. The mortgage applications preceded her appointment to the Fed.
Cook responded several hours later in a statement emailed to reporters through the law office of lawyer Abbe Lowell, saying of Trump that “no causes exist under the law, and he has no authority” to remove her from the job she was appointed to by former US president Joe Biden in 2022.
“I will continue to carry out my duties to help the American economy,” the statement read.
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Attorney Lowell said that Trump’s demands “lack any proper process, basis or legal authority”, adding: “We will take whatever actions are needed to prevent this attempted legal action.”
Cook took out the mortgages in question in 2021 when she was still an academic. An official financial disclosure form for 2024 lists three mortgages held by Cook, with two listed as personal residences. Loans for primary residences can carry lower rates than mortgages on investment properties, which are considered riskier by banks.
The claims against Cook coincide with a broad effort by the Trump administration against diversity, equity and inclusion programmes in the US government, a process that has led to the departure of some prominent women and minorities.
Cook is the first African-American woman to serve on the Federal Reserve’s governing body.
The Trump administration has also targeted other political opponents, including US Senator Adam Schiff, with similar accusations of mortgage fraud.
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Questions about Cook’s mortgages were first raised last week by US Federal Housing Finance Agency Director William Pulte, who referred the matter to Attorney General Pamela Bondi for investigation.
Though the terms of Fed governors are structured so they outlast the term of any given president, with Cook’s term lasting until 2038, the Federal Reserve Act does allow the removal of a sitting governor “for cause”.
That has never been tested by presidents who, particularly since the 1970s, have largely taken a hands-off approach to Fed matters as a way to ensure confidence in US monetary policy.
Legal scholars and historians said the thicket of issues that could be raised in a legal challenge would span questions around executive power, the Fed’s unique quasi-private nature and history, as well as whether anything Cook did amounted to cause for removal.
Peter Conti-Brown, a scholar of the Fed’s history at the University of Pennsylvania, noted that the mortgage transactions preceded her appointment to the Fed, and were in the public record when she was confirmed by the Senate.
“These officials have been vetted by our President and our Senate, that means that all things that they had done during their times as a private citizen were already vetted,” Conti-Brown said.
“So the idea that you can then reach back, turn the clock backward and say, you know, all these things that have happened before now constitute fireable offenses from your official position is to me incongruous with the entire concept of ‘for cause’ removal.”
'Alarm bells everywhere'
Trump in the letter accused Cook of having “deceitful and criminal conduct in a financial matter” and said he did not have confidence in her “integrity”.
“At a minimum, the conduct at issue exhibits the sort of negligence in financial transactions that calls into question your competence and trustworthiness as a financial regulator,” he said, claiming authority to fire Cook under Article 2 of the US Constitution and the Federal Reserve Act of 1913.
It is unclear how the matter might play out from here, with Trump saying the firing was “effective immediately” and the Fed set to hold a policy meeting on September 16-17.
Academic research has consistently found that policymakers allowed to manage inflation independent of political influence generally achieve better outcomes, a principle that may now be tested at the world’s most influential central bank.
“It speaks to the determination of this administration to remake the Federal Reserve and serves as a warning to the other Biden appointees. The Fed as an institution escaped harm in the first Trump Administration, and will not be so fortunate this time around,” said Tim Duy of SGH Macro Advisors.
Shares mostly sank Tuesday in Europe and Asia after Trump’s announcement.
“Trump’s decision to remove a sitting Fed governor has shaken confidence in the institution that underpins the world’s financial system," Nigel Green of the financial advisory deVere Group said in a commentary.
“Investors are reacting because the independence of the central bank is critical to market stability, and any sign of political capture raises alarm bells everywhere.”
Pressure campaign
Trump has repeatedly berated Fed chair Jerome Powell over not lowering interest rates, though he has halted threats to fire him from a term that ends in a little under nine months.
His focus last week turned to Cook, whose departure would allow Trump to select his fourth pick to the Fed’s seven-member board, including Governor Christopher Waller and the pending nomination of Council of Economic Advisers chief Stephen Miran.
(FRANCE 24 with Reuters)
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