Federal Reserve governor Lisa Cook will file a lawsuit to prevent President Donald Trump firing her, a lawyer for the embattled central bank official said on Tuesday, kicking off what could be a protracted legal fight over the White House's effort to shape US monetary policy.
“His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis. We will be filing a lawsuit challenging the illegal action,” Cook's lawyer, prominent Washington attorney Abbe Lowell, said in a statement.
The statement was issued a day after Trump said he would fire Cook, the first black woman to serve on the central bank's governing body, for alleged “deceitful and potential criminal conduct” related to mortgages she took out in 2021.
Trump's attempt to remove her, unprecedented in the 111-year history of the nominally independent US Federal Reserve board, is consistent with his style of breaking norms and prompting opponents to challenge him in court.
It comes after other largely successful efforts to bring other elements of the US government under his direct control. The president has overseen the departure of hundreds of thousands of civil servants, dismantled several agencies and withheld billions of spending authorised by Congress.
“We need people who are 100% above board and it doesn't seem like she was,” Trump told reporters at a meeting.
He said he had several “good people” in mind to replace Cook but would abide by any court decision that left her in her job. Trump pressured the Fed to lower interest rates during his first term in the White House and has escalated that campaign in recent months. The president has demanded rates be cut by several percentage points and threatened to fire Fed Chair Jerome Powell, though he recently backed down from that.
Cook's departure would allow Trump to pick most of the Fed's seven-member board, including two incumbents and the pending nomination of White House economist Stephen Miran. Trump said he may consider Miran, who he nominated for a temporary seat on the Fed board that is due to expire in January, for Cook's seat should it become vacant. The Wall Street Journal reported that former World Bank Group president David Malpass, a longtime Trump ally, was also discussed for the job.
The Fed said Cook and other board members serve 14-year tenures and cannot be removed easily from office to ensure monetary policy decisions are based on economic data and “the long-term interests of the American people”.
Though Trump on Monday said Cook's firing was “effective immediately”, the Fed's statement indicates it sees Cook's status as unchanged. The central bank meets to set interest rates on September 16 and 17, and based on the Fed's statement it appears it would take a court ruling between now and then for her to be prevented from participating.
The attempt to influence US monetary policy has shaken confidence in the dollar and US sovereign debt and sparked fears of global financial turmoil. Wall Street's main equities indexes closed slightly higher on Tuesday while the dollar dropped. The yield curve on US treasuries steepened on Tuesday as Trump's attempt to fire Cook raised concerns about the US central bank's independence and the prospect of a potentially more dovish composition of Fed policymakers.
Trump said in a letter to Cook on Monday he had “sufficient cause” to fire her because she had described separate properties in Michigan and Georgia as primary residences on mortgage applications before she joined the Fed in 2022.
In recent months Trump has fired several black women who held senior government positions, including the head of the Library of Congress and the chair of the National Labour Relations Board.
William Pulte, a Trump appointee who is director of the Federal Housing Finance Agency, first raised questions about Cook's mortgages last week and referred the matter to US attorney general Pamela Bondi for investigation. Bondi has yet to say whether the justice department will take action. Cook took out the two mortgages in question when she was an academic.
She is due to serve on the Fed board until 2038, but the Federal Reserve Act allows removal of a sitting governor “for cause”.
Until now, that power has not been tested. US presidents have largely taken a hands-off approach to Fed matters to ensure confidence in monetary policy.
Peter Conti-Brown, a scholar of the Fed's history at the University of Pennsylvania's Wharton School, 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 idea that 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,” Conti-Brown said.
Academic research has found policymakers who are allowed to manage inflation independent of political meddling generally achieve better outcomes.
Tim Duy, chief US economist at SGH Macro Advisors, said: “The Fed as an institution escaped harm in the first Trump administration, and will not be so fortunate this time around.”
Reuters
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