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 could test the boundaries of presidential power over the independent monetary policy body should it be challenged in court.
Trump said in a letter to Cook, the first African-American woman to serve on the Federal Reserve's governing body, 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 the two were a primary residence where she intended to live.
Cook, appointed to the Fed board in 2022 by former US president Joe Biden, has yet to provide a detailed account of the transactions since questions about them were raised last week by US federal housing finance agency director William Pulte, who referred the matter to attorney general Pamela Bondi for investigation.
Cook and the Fed had had no immediate responses to Reuters.
Though the terms of Fed governors are structured so they outlast the term of a president, with Cook's term lasting until 2038, the Federal Reserve Act does allow 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 issues that could be raised in a legal challenge would span questions around executive power, the Fed's unique quasi-private nature and history and whether anything Cook did amounted to cause for removal.
Peter Conti-Brown, a scholar of the Fed’s history at the University of Pennsylvania, said the mortgage transactions preceded her appointment to the Fed and were in the public record when she was vetted and confirmed by the Senate.
“The officials have been vetted by our president and our senate. That means all things they had done during their times as a private citizen were vetted,” Conti-Brown said.
“The idea you can reach back, turn the clock backward and say all the things that have happened before constitute fireable offences from your official position is to me incongruous with the entire concept of 'for cause' removal.”
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 the US constitution and the Federal Reserve Act.
Cook had been defiant about continuing at the Fed after the issue became public last week with Trump calling for her to resign.
“I have no intention of being bullied to step down from my position because of questions raised in a tweet,” Cook said on August 20.
“I do intend to take any questions about my financial history seriously as a member of the Federal Reserve, and I am gathering the accurate information to answer legitimate questions and provide the facts.”
It is unclear how the matter might play out. Members of other independent US agencies who have challenged Trump's efforts to fire them have had to conduct their legal challenges at their own expense, a potentially costly undertaking with little clarity about the likely outcome. The Fed next meets on September 16 and 17.
Trump's move was greeted with a steepening US treasury yield curve as yields on two-year notes, sensitive to near-term Fed policy expectations, quickly fell while yields on longer dated 10-year notes, sensitive to inflation risks, rose briskly.
The reaction reflects expectations that the Fed policy rate may drop but at the expense of its commitment to thwart inflation.
Academic research has consistently found policymakers allowed to manage inflation independent of political influence generally achieve better outcomes, a principle that may be tested at the world's most influential central bank.
“It speaks to the determination of the 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 SGH Macro Advisors’ Tim Duy.
“It’s another reason to believe rates will be lower than would otherwise be the case.”
Trump has repeatedly berated Powell over not lowering interest rates, though has halted threats to fire him from a term that ends in nine months.
His focus last week turned to Cook, whose departure would allow Trump to select his fourth pick to the Fed's 7 member board, including governor Christopher Waller and vice chair for supervision named in his first term, and the pending nomination of council of economic advisers chief Stephen Miran to an open seat.
Cook took out the mortgages in question 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. 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. The Trump administration has also targeted other political opponents, including US senator Adam Schiff, with similar accusations of mortgage fraud.
Reuters
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