Fed Governor Cook sues Trump over his attempt to fire her

WASHINGTON DC: Federal Reserve Governor Lisa Cook filed a lawsuit on Thursday (Aug 28) claiming United States President Donald Trump has no power to remove her from office, setting up a legal battle that could reset long-established norms for the US central bank's independence.

Cook also asked the court for a temporary restraining order to block her removal, with a hearing set for Friday morning in Washington.

Cook's lawsuit said Trump violated a federal law allowing him to remove a Fed governor only "for cause" when the Republican president took the unprecedented step on Aug 25 of announcing he would fire her.

Trump has accused Cook of committing mortgage fraud in 2021, a year before she joined the central bank's governing body. Cook has denied wrongdoing, and her lawsuit said an allegation about conduct before she was confirmed does not amount to legal cause.

"President Trump's conception of 'cause' has no limiting principle; it would allow him to remove any Federal Reserve Board member with whom he disagrees about policy based on chalked-up allegations," her lawyers wrote in the lawsuit.

The lawsuit also accused Trump of violating her right to due process under the US Constitution by firing her without notice or a hearing.

White House spokesperson Kush Desai said Trump exercised "lawful authority" in removing Cook, calling her "credibly accused of lying in her mortgage documents" and adding that the move "for cause improves the Federal Reserve Board's accountability and credibility for both the markets and American people".

The case is likely headed to the Supreme Court, where a conservative majority has at least tentatively allowed Trump to fire officials from other agencies, though it recently signalled the Fed may qualify for a rare exception from direct control by the president.

Concerns about the Fed's independence from the White House in setting monetary policy could have a ripple effect throughout the global economy.

The US dollar stumbled against other major currencies after Trump first said he would remove Cook. It was trading lower on Thursday as traders kept bets that the Fed would gradually cut interest rates starting next month.

A Fed spokesperson said on Tuesday, before the lawsuit was filed, that the Fed would abide by any court decision. Trump said on Wednesday he would also respect the outcome.

The Fed did not immediately respond to a request for comment on Thursday.

Cook was appointed to the Fed in 2022 by Democratic former President Joe Biden and is the first Black woman to serve as a Fed governor.

Trump earlier this year also fired Gwynne Wilcox, the first Black woman to sit on the National Labor Relations Board, which hears private-sector labour disputes. Trump has also dismissed a slew of officials from other agencies that have long been treated as independent from the White House.

PRESSURE CAMPAIGN

The law that created the Fed does not define "cause" or lay out any standard or procedures for removal. 

No president has ever removed a Fed board member, and the law has never been tested in court.

Several federal laws requiring the president to have cause before removing members of other agencies say that the term can include neglect of duty, malfeasance, and inefficiency. Those laws could be a guide for courts to determine if Trump had cause to fire Cook.

Questions about Cook's mortgages were first raised in August by William Pulte, a Trump appointee who is the director of the Federal Housing Finance Agency. Pulte referred the matter to Attorney General Pamela Bondi for investigation.

Cook took out the mortgages in Michigan and Georgia in 2021 when she was an academic. An official financial disclosure form for 2024 lists three mortgages held by Cook, with two listed as personal residences. Her filing shows the rates she paid were higher than national averages at the time.

Loans for primary residences can carry lower rates than mortgages on investment properties, which are considered riskier by banks.

Some experts have questioned whether transactions that preceded Cook's appointment to the Fed and were in the public record when she was vetted and confirmed by the US Senate could amount to adequate cause to remove her.

The Trump administration could also argue that giving Fed governors any protections from removal violates the president's broad constitutional powers to control the executive branch, as it has in lawsuits filed by other ex-officials.

Trump in an Aug 25 letter to Cook accused her of having engaged in "deceitful and criminal conduct in a financial matter" and said he did not have confidence in her integrity.

Cook's departure would allow Trump to name his fourth pick to the Fed's seven-member board. The Senate Banking Committee is expected next month to consider Trump's nomination of Stephen Miran, the head of the White House's Council of Economic Advisers, to fill the only current vacancy on the board. The White House wants him confirmed in time to vote at the Fed's Sep 16-17 policy meeting.

The president has repeatedly berated Fed Chair Jerome Powell for not lowering rates and over his alleged mishandling of a multibillion-dollar renovation project, though he has halted threats to remove Powell before his term as central bank chief ends in May.

Cook, who remains in her job for now, has consistently voted with the Fed’s majority

The Trump administration has also targeted political opponents, including US Senator Adam Schiff and New York Attorney General Letitia James, with similar accusations of mortgage fraud. Schiff and James have denied wrongdoing.

The lawsuit was assigned to Judge Jia Cobb, a Biden appointee. Analysts said the case could set a precedent shaping the balance of power between the White House and the Fed for years to come.