Fed’s Lisa Cook Challenges Trump’s Power to Fire Her Amid Rate-Cut Push

TLDR

Table of Contents

Lisa Cook will legally challenge Trump’s attempt to remove her from the Fed Board.
Trump cites a DOJ investigation as cause for Cook’s removal from her post.
Removing Cook could give Trump appointees a Fed Board majority.
Fed says it will follow the court’s decision on Cook’s removal case.

Federal Reserve Governor Lisa Cook is preparing legal action against President Donald Trump after he moved to remove her from the central bank. This marks the first time a U.S. president has attempted to fire a Fed Governor. The move comes as Trump pushes for interest rate cuts ahead of the upcoming Federal Open Market Committee (FOMC) meeting in September.

Legal Challenge Over Removal

Lisa Cook has decided to remain in her position on the Federal Reserve Board despite President Trump’s attempt to remove her. Her lawyer, Abbe Lowell, said that a lawsuit will be filed to challenge what he described as an unlawful action by the president.

Lowell said, “President Trump has no legal authority to remove Governor Cook. This is a clear violation of federal law.” The law states that Federal Reserve Governors can only be removed “for cause,” such as misconduct or inability to perform their duties.

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Trump cited an ongoing investigation by the Department of Justice into alleged mortgage fraud involving Cook as grounds for her removal. However, Lowell dismissed the DOJ referral as lacking legal or factual basis. The lawsuit will aim to establish that Cook’s removal violates both precedent and statutory protections for Fed officials.

The Federal Reserve confirmed it would comply with any legal ruling on the matter. A spokesperson said, “We respect the legal process and await the court’s decision. Governor Cook has already indicated she will challenge the action.”

Rate Cut Push and Board Dynamics

Trump’s attempt to remove Cook has come just weeks before the September FOMC meeting, where a rate cut decision is expected. According to CME FedWatch, market data now suggests an 86.3% chance of a 25 basis points cut next month.

Observers say that removing Cook would shift the balance of power within the Fed Board. If successful, Trump appointees would hold four out of the seven governor seats. This could strengthen his ability to push for faster rate cuts, aligning the Board with his economic policies.

During a cabinet meeting, Trump stated that his administration would soon have a majority on the Fed Board. Market analysts believe this may influence future interest rate decisions. A post from The Kobeissi Letter noted that Cook’s removal would “materially increase the chances of deeper rate cuts ahead of the election cycle.”

Though Cook is not the only Fed official facing political pressure, her removal has received more attention due to its direct effect on Board composition. Last month, Trump ally Rep. Anna Paulina Luna referred Chair Jerome Powell for alleged perjury, adding to tensions between the White House and the Fed.

Historical Context and Market Reaction

This is the first time a U.S. president has moved to fire a sitting Federal Reserve Governor. Traditionally, the Fed operates independently of the White House to avoid political influence over monetary policy.

Federal law protects Fed Governors from being dismissed without proven misconduct. By challenging this, Trump is testing legal boundaries that have remained largely untouched since the Fed’s formation in 1913.

Market participants are watching the situation closely. If Cook remains, the current rate-setting stance of the Fed may continue. If she is removed, Trump appointees could have more control over rate policy.

Investors are already pricing in a 25 bps rate cut in September. With economic growth slowing and inflation cooling, the Fed may already be leaning toward easing policy. However, the legal fight over Cook’s position adds another layer of uncertainty to an already sensitive economic moment.

The Fed has said it will let the courts decide. Cook has made it clear she does not intend to step down voluntarily.

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