Why has Trump fired Federal Reserve’s Lisa Cook? Is the ousting allowed by law?

When Donald Trump was a reality star — he appeared on the American show The Apprentice — he became famous for his tag line: ‘You’re fired.’

And on Monday (August 25), he announced that he had fired Federal Reserve Governor Lisa Cook , citing allegations of mortgage fraud that haven’t been taken to court. The US president in a social media post noted that Cook was hereby “removed from your position…. effective immediately”.

This marks the latest escalation of his withering attacks against the central bank. In the past, he has threatened to dismiss Jerome Powell, chair of the Federal Reserve.

More from Explainers

Trump targets Fed governor Lisa Cook, sparking court fight over White House authority Trump has ‘no authority’ to fire: Fed governor Lisa Cook says ‘will continue to carry out my duties’

It’s not clear if US President Trump has the legal authority to pull off this move, which could trigger a court battle and send tremors through financial markets.

Here’s what we know so far of this unfolding situation.

Who is Lisa Cook?

Federal Reserve Governor Lisa Cook is a renowned American economist and academic. Born in 1964 in Milledgeville, Georgia, she has various educational qualifications to her name, including a PhD in economics from the University of California, Berkeley.

Prior to being appointed to the Fed, Cook, was a professor of economics and international relations at Michigan State University. From 2018 to 2021, she was director of the American Economic Association Summer Training Program. She was also a research associate at the National Bureau of Economic Research. Cook also did some political work. She was on the staff on former President Barack Obama’s council of economic advisers and was a staffer on Biden’s transition team.

However, it all changed in May 2022 when she became the first Black woman to serve on the central bank’s board of governors. Her term ended in January 2024, but she was reappointed to the Board on September 8, 2023 for a term, which was to end on January 31, 2038.

Editor’s Picks

1

Trump vs Powell: Can the US president really fire a Fed chief? 2

Who is Stephen Miran, Trump’s short-term Fed pick?

Why has Trump ousted Lisa Cook from the Fed?

On Monday, Trump noted in a social media post that he was dismissing Cook over mortgage fraud allegations.

“The Federal Reserve has tremendous responsibility for setting interest rates and regulating reserve and member banks,” Trump wrote in a letter that he posted online in which said he had lost confidence in Cook. He argued her conduct constituted “gross negligence” that fit into his authority to remove her from the Board of Governors. Trump wrote that Cook was hereby “removed from your position…. effective immediately.”

But what exactly are these mortgage fraud allegations against her?

Earlier this month, Bill Pulte, a Trump loyalist who oversees the mortgage giants Fannie Mae and Freddie Mac, alleged in a letter that she had “falsified bank documents and property records” to obtain more favourable terms on mortgages.
According to the letter, Cook took a mortgage on a property in Ann Arbor, Michigan, stipulating that it would be her primary residence, and then two weeks later declared the same for another mortgage on a Georgia property.

As per the rules, a person can only claim one primary residence, the place they live most of the time, per year. Experts note that it’s not clear if Cook had, indeed, resorted to mortgage fraud.

In response to the claims, Cook had said earlier , “I have no intention of being bullied to step down from my position because of some questions raised in a tweet,” she said in a statement. “I do intend to take any questions about my financial history seriously as a member of the Federal Reserve, and so I am gathering the accurate information to answer any legitimate questions and provide the facts.”

And after Trump’s announcement, Cook once again stated that Trump has no authority to fire her and she will not resign. “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so,” Cook said in a statement. “I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022.”

But can Trump actually fire Cook?

Trump’s move to fire one of seven members of the Fed’s board of governors is unprecedented in the bank’s 111-year history. It is also expected to become a legal matter as experts note that the White House will have to demonstrate, perhaps in court, that it had sufficient reason to fire Cook.

As per American law, the president can’t remove a member of the Fed without “cause,” which is interpreted to mean malfeasance or gross misconduct, but that has not been fully tested in court.

Lev Menand, a professor at Columbia Law School and former economist at the Federal Reserve Bank of New York, told the New York Times that the allegations against Cook were “not sufficient” enough to allow Trump to remove her from the Fed, adding that she has not been charged or convicted of any crime. “This would be a complicated proceeding,” he added.

In court too, there would be complications. In the past, the US Supreme Court has maintained that the Fed occupies a distinctive place in the government. However, in May Justice Elena Kagan wrote, “the Federal Reserve’s independence rests on the same constitutional and analytic foundations” as those of agencies whose leaders the majority allowed Trump to fire.

What does this mean for the Fed?

Trump’s latest action against Cook is part of the relentless war that the US president has waged against the central bank. The US president has demanded that the bank lower interest rates. He has also resorted to name-calling; in the past, he has referred to Powell as a “numbskull” and a “stubborn moron”. He’s also threatened to fire the Fed chair from his position.

Shortly after Trump’s announcement, Democrat Senator Elizabeth Warren said, “The illegal attempt to fire Lisa Cook is the latest example of a desperate president searching for a scapegoat to cover for his own failure to lower costs for Americans.”

“It’s an authoritarian power grab that blatantly violates the Federal Reserve Act, and must be overturned in court,” said Warren.

With inputs from agencies