Trump goes unabashedly where no U.S. President has gone before: firing a sitting Fed Governor

U.S. President Donald Trump said that he has dismissed Lisa Cook, the Federal Reserve Governor—a highly controversial move that could put to the test the executive powers of the President over the monetary policy body—over allegations of committing mortgage fraud.

According to reports, Trump sent a letter to Cook, saying that he had “sufficient cause to remove” her from her position. The allegations refer to Cook indicating that she intended to live in and maintain properties in Georgia (a condominium in Atlanta) and Michigan as her private residence, as stated in documents to obtain two different mortgage loans. In his letter, Trump also accused Cook of harbouring “deceitful and criminal conduct in a financial matter”, adding that her “integrity” did not instil confidence in him.

Cook reportedly responded hours later via an emailed statement sent to reporters in the U.S., using the law office of lawyer Abbe Lowell as an intermediary, according to a Reuters report. Cook has reportedly said of Trump that “no cause exists under the law,” claiming that the President had “no authority” to show her the door, as she was appointed by former U.S. President Joe Biden in 2022. “I will continue to carry out my duties to help the American economy,” said Cook, who is the first African-American woman to serve on the governing body of the Federal Reserve.

Lowell, on the other hand, who was quoted as saying that President Trump’s demands “lack any proper process, basis or legal authority. We will take whatever actions are needed to prevent this attempted legal action.” It should be noted that the allegations of Cook’s mortgage fraud first surfaced when U.S. Federal Housing Agency director William Pulte. Trump has reportedly escalated Pulte’s allegations—by first calling for her resignation, then threatening her termination before eventually firing her. Pulte, on the other hand, referred the matter to Attorney General Pamela Bondi for investigation.

Legal contention can open a Pandora’s Box

The term of a Governor of the Federal Reserve, by design, outlasts that of a President. Cook’s term is slated to expire in 2038. On the other hand, there is a provision in the Federal Reserve Act that the term of a sitting Governor of the Federal Reserve can be prematurely ended, and he can be removed “for cause”, usually malfeasance or dereliction of duty in some form.

Still, the U.S. Federal Reserve has been designed to function independently of the U.S. President’s office and, in turn, immune to political pressure. While presidents in the past have maintained a “hands-off” approach while dealing with the U.S. Federal Reserve, President Trump has been pressing the Federal Reserve—in particular Jerome Powell, the Chair—to sharply lower interest rates to pump the economy in the short-term, and ease the financing of rising deficits.

However, if the matter is taken to court, then it would call into question the executive powers of the U.S. President, and the nature of the U.S. Federal Reserve and its operation. Reports have also suggested that an openly adversarial relationship between the White House runs the risk of investors demanding higher interest rates as a recompense for the higher risk of inflation, defeating the purpose of President Trump’s crusade in the first place.

A Washington Post report also suggests the President has been talked out of removing Powell, something he might have been thinking of doing, given his public lampooning of Powell for not toeing the President’s line of drastically lowering interest rates almost immediately. His advisors and confidantes dissuaded him from even attempting to remove Powell, arguing that his sudden removal would be too ‘disruptive’ for the financial markets.

Uncertainty abounds about what will transpire in the U.S. Federal Reserve’s policy meeting on September 16 and 17, since Cook’s dismissal is effective immediately, but Cook has refused to step down. This is the latest salvo by President Trump to install people in the Federal Reserve who agree with his clarion call to reduce interest rates drastically.