On Monday, President Trump shocked many by declaring he had fired Federal Reserve Governor Lisa Cook through a letter shared on his social media. This marks a historic first, as it’s the first time in 111 years that a president has taken such a step against a central bank governor.
This unexpected decision heightens the ongoing tensions between Trump and the Fed, especially as the president criticizes the central bank for not lowering interest rates fast enough.
Cook has recently faced accusations of mortgage fraud, a claim that Trump and some of his administration members have levied against her. Investigations are set to unfold as the Justice Department plans to look into these allegations, initially proposed by Bill Pulte, the Federal Housing Finance Director.
It’s important to note that Cook has not been charged with any crime to date.
Responding to the president’s claim of firing her “for cause,” Cook released a statement asserting that there is no legal basis for such an act. Her attorneys shared that she will continue her work for the American economy, insisting she’s done since taking her position in 2022.
The Federal Reserve has opted not to offer any comments regarding this situation.
The legality of Trump’s firing is uncertain, as the law states that a president can only remove Fed board members “for cause,” though the specifics of what constitutes valid reasons have yet to be clearly defined.
In his letter, Trump claimed, “I have determined that there is sufficient cause to remove you from your position.” Meanwhile, a CNN analysis regarding Cook’s mortgage documents found that she took out loans for two houses, both designated as her principal residence. However, the reasons for these actions remain unclear.
Trump labeled Cook’s operations as deceptive and possibly criminal in financial matters, expressing that this behavior challenges her capability and trust as a financial regulator.
Legal analyst Shan Wu emphasized to CNN’s Brianna Keilar that the absence of charges by the Department of Justice casts doubts on the justifications for the termination, and the matter is likely to end up in court.
Cook, who was appointed by former President Biden in 2022, made history as the first Black woman to serve on the Fed’s board.
Even though Trump’s decision may go through legal challenges, the firing of Cook raises significant questions regarding the Fed’s autonomy, especially for a central bank influencing the world’s largest economy.
It’s still uncertain if Cook will vacate her board seat immediately, and whether Trump will have a chance to nominate a successor. Cook’s attorney, Abbe David Lowell, vowed to take any necessary actions to oppose what they call an illegal termination attempt.
The Fed’s next monetary policy gathering is scheduled for September 16 and 17.
Earlier in the week, Cook made it clear she would not be intimidated into quitting, stating, “I have no intention of being bullied to step down due to a tweet’s implications. I am taking any attention to my financial matters seriously as a Federal Reserve member and am securing all necessary information to address any valid inquiries and present the truth.”
Concerns Over Fed’s Independence
The Federal Reserve’s independence is crucial as it aims to guide the economy with unbiased expertise, more focused on economic indicators than political agendas. Often, political leaders prefer lower interest rates to stimulate stock market growth and make borrowing cheaper for constituents, but this could escalate inflation.
On the other hand, excessively high rates might suppress spending, potentially hampering economic growth.
While no central bank is infallible, numerous studies indicate that economies led by independent central banks often see more favorable outcomes, including reduced inflation levels.
If Trump’s actions wind up undermining the US’s economic credibility, it could result in harsher demands from investors, affecting the country’s financial stability.
In a statement on the matter, former Federal Reserve Vice Chair Alan Blinder remarked, “The rationale behind an independent Fed is both logical and essential. Trump’s efforts to entangle it with his administration would severely jeopardize monetary policy effectiveness.”
Senator Elizabeth Warren, a key Democratic figure within the Senate Banking Committee, criticized Trump’s attempt to fire Cook as an “authoritarian power grab” that blatantly violates the Federal Reserve Act, urging it to be contested in court.
Responses from representatives of Republican Senator Tim Scott, who oversees the committee, were not immediately forthcoming.
Following Trump’s announcement, the US dollar index dipped by 0.3%, signalling a drop in confidence against various international currencies.
Market futures for US stocks also retreated after a positive day, with Dow futures declining by 100 points (0.2%), S&P 500 futures dropping by 0.3%, and a 0.5% slip in Nasdaq 100 futures.
Conversely, gold prices, often sought after in uncertain times, climbed by 0.45%.
This story has been updated with further insights and events.
CNN’s reporting contributions by Matt Egan, John Liu, and John Towfighi are acknowledged.
