Trump orders removal of Federal Reserve governor Lisa Cook, prompting legal fight and warnings about threat to Fed independence

President Donald Trump has directed the ouster of Fed Governor Lisa Cook, citing allegations of mortgage fraud that her lawyers say are a pretext; economists and legal scholars warn the move could erode the central bank’s independence and raise costs for ordinary borrowers.

President Donald Trump on Monday ordered the removal of Lisa Cook from the Federal Reserve’s Board of Governors, an unprecedented step that legal experts say raises serious questions about the bounds of presidential authority over the central bank. Cook, a Biden appointee and one of seven governors who participate in Federal Open Market Committee decisions, has said she will not resign and has filed suit to block the firing.

The White House action relies on an allegation that Cook falsified mortgage records by claiming two different properties as primary residences, an accusation first advanced by Bill Pulte, director of the Federal Housing Finance Agency (FHFA). The administration has characterized the allegation as grounds for “for cause” removal; Cook’s attorneys contend the claim is unproven and politically motivated. Federal Reserve governors serve 14-year terms and are generally removable by a president only for “neglect of duty or malfeasance,” a legal standard lawyers say is narrow and rarely invoked.

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H2: Legal challenge and the role of Bill Pulte

Cook’s removal is tied to an investigation launched by FHFA Director Bill Pulte, who publicly accused her of mortgage fraud and said he had referred the matter to the Justice Department. Pulte, a 37-year-old political appointee whose office oversees government-sponsored enterprises Fannie Mae and Freddie Mac, has in recent months targeted others close to Trump’s political opponents, according to reporting, and has pressed for criminal inquiries into high-profile Democrats.

Cook’s lawyers have filed a lawsuit challenging the legality of her dismissal and asking a federal court to block the action while the case proceeds. Courts in the coming days are expected to weigh whether to issue a temporary restraining order or preliminary injunction that would leave Cook in her seat pending resolution of the suit. Legal scholars say the case could ultimately reach the Supreme Court and that a ruling in favor of the administration could establish a new precedent for how and when presidents may remove independent agency officials.

The attempted removal marks the first known instance in the Federal Reserve’s more than a century-long history in which a president has publicly sought to fire a sitting governor. The Fed’s structure—seven governors appointed for staggered 14-year terms, along with five rotating regional Fed presidents—was designed to insulate monetary policy from short-term political pressures. Critics of the move say the White House’s use of a narrow misconduct claim as a basis for removal threatens that insulation.

White House officials have framed the action as enforcement of ethics and legal standards. Republicans sympathetic to the president have argued that any federal official accused of wrongdoing should be investigated and, if appropriate, removed. Democrats and many independent analysts counter that the charges do not meet the high threshold required to remove a governor and are being used to alter the Fed’s policymaking personnel for political ends.

H2: Potential economic consequences

Economists and market observers warned that the broader purpose behind pressuring or replacing Fed officials is to secure a more pliant central bank that will cut short-term interest rates on demand. A Fed willing to lower rates sharply and prematurely to accommodate political objectives could stoke higher inflation. Higher inflation, in turn, erodes purchasing power and—ironically—can lead to higher nominal borrowing costs over time as markets demand greater inflation compensation.

“Politicizing the Fed risks undermining its ability to keep inflation in check,” said one economist interviewed in reporting on the episode. If the Fed were to cut rates substantially in response to political pressure, economists said, the immediate effect might be lower costs for mortgages, auto loans and business borrowing, but the longer-term result could be a hotter economy and higher inflation. Those longer-term inflationary pressures can force central banks to raise nominal rates later, making mortgages and other loans more expensive than they would otherwise have been.

The Federal Reserve’s decisions affect day-to-day financial conditions for households and businesses. Through its policy rate and communications, the Fed influences mortgage rates, auto loans, credit-card interest and business lending. Investors also watch the Fed for signs about the trajectory of inflation and economic growth; uncertainty about the central bank’s independence can increase market volatility and risk premia, which can raise borrowing costs across the economy.

Policy experts note that while the president can nominate new governors when vacancies occur, forcibly removing a sitting governor for reasons other than clear malfeasance would be a sharp break from precedent. That break could change how markets and foreign counterparts view U.S. monetary policy, potentially weakening the dollar’s status as the world’s principal reserve currency over a prolonged period if political control of monetary policy became entrenched.

Timeline and context

The sequence that culminated in Monday’s order began last week when the FHFA director publicly alleged mortgage-record irregularities and said his office had made a criminal referral. That allegation became the basis for the administration’s “for cause” removal claim. Trump and allies have also publicly criticized Federal Reserve Chair Jerome Powell and other officials for not aligning monetary policy with the president’s preferences.

Cook, an economist who had been confirmed to the Fed’s Board of Governors during the Biden administration, holds a seat that participates in the Federal Open Market Committee, the body charged with setting U.S. interest rates. According to the lawsuit Cook filed, her term runs through 2038. She has denied any fraudulent conduct in her mortgage applications and stated she will contest the firing in court.

The episode also highlights broader tensions over the role of independent agencies in the U.S. administrative state. Critics on the left and right have long debated the proper degree of insulation for regulatory bodies; this confrontation centers on the Fed because monetary policy has direct and powerful effects on the economy and because the Fed’s independence has been a central pillar of American economic policy since the mid-20th century.

Political reactions were predictable: Democratic lawmakers called the removal attempt an attack on institutional independence and vowed to challenge the move, while some Republicans and allies of the president defended the probe into Cook and Pulte’s decision to flag the case. Financial markets responded with increased attention to legal developments and to commentary from Fed officials about the bank’s commitment to its dual mandate of price stability and maximum employment.

What comes next

A federal judge could decide as soon as next week whether Cook should remain in place during litigation, setting up a potentially protracted legal and institutional battle. If a court allows the removal to stand, legal experts say the decision would likely be appealed, potentially reaching the Supreme Court and shaping the law on presidential removal powers for decades.

Regardless of the legal outcome, the confrontation has already injected political risk into monetary policy decision-making and into public perceptions of the Fed’s ability to act without partisan interference—an outcome that many economists warn could have tangible costs for consumers and businesses.

Sources

• https://www.vox.com/democracy/459610/trump-lisa-cook-federal-reserve-firing
• https://abcnews.go.com/US/wireStory/end-federal-reserve-independence-125134189
• https://www.vox.com/the-logoff-newsletter-trump/459426/trump-federal-reserve-board-cook-pulte
• https://www.vox.com/politics/421362/bill-pulte-fhfa-powell-schiff-james-fed-chair
• https://www.vox.com/democracy/459610/trump-lisa-cook-federal-reserve-firing
• https://www.vox.com/the-logoff-newsletter-trump/459426/trump-federal-reserve-board-cook-pulte