Trump fires US Fed governor Lisa Cook, alleging false statements on mortgage forms

NEW YORK/WASHINGTON – US President Donald Trump on Aug 25 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.

Mr Trump said in a letter to Dr Cook, the first African-American woman to serve as head of the Federal Reserve’s governing body, that he had

“sufficient cause to remove you from your position”

because in 2021, she indicated on documents for separate mortgage loans on properties in Michigan and Georgia that both were her primary residence where she intended to live.

Dr Cook responded several hours later in a statement e-mailed to reporters through the law office of lawyer Abbe Lowell, saying of Mr Trump that “no causes exist under the law, and he has no authority” to remove her from the job she was appointed to by then US President Joe Biden in 2022. “I will continue to carry out my duties to help the American economy,” she said.

Mr Lowell said that Mr Trump’s “demands lack any proper process, basis or legal authority. We will take whatever actions are needed to prevent this attempted legal action”.

Questions about Dr Cook’s mortgages were first raised last week by US Federal Housing Finance Agency director William Pulte, who referred the matter to Attorney-General Pamela Bondi for investigation.

Though the terms of Fed governors are structured so that they outlast the term of a given president, 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, largely have taken a hands-off approach to Fed matters as a way to ensure confidence in US monetary policy.

Legal scholars and historians said the thicket of issues that could be raised in a legal challenge would span questions around executive power, the Fed’s unique quasi-private nature and history, as well as whether anything Dr Cook did amounted to cause for removal.

Associate Professor Peter Conti-Brown, a scholar of the Fed’s history at the University of Pennsylvania, noted the mortgage transactions preceded her appointment to the Fed and were in the public record when she was vetted and confirmed by the Senate.

“These officials have been vetted by our President and our Senate; that means that all things that they had done during their times as a private citizen were already vetted,” Prof Conti-Brown said.

“So the idea that you can then reach back, turn the clock backwards and say, you know, all these things that have happened before now constitute fireable offences from your official position, is to me incongruous with the entire concept of ‘for cause’ removal.”

Mr Trump in the letter accused Dr 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 gross negligence in financial transactions that calls into question your competence and trustworthiness as a financial regulator.”

Mr Trump claimed he had the authority to fire Dr Cook under Article 2 of the US Constitution and the Federal Reserve Act of 1913.

Dr Cook had been defiant about continuing at the Fed after the issue first became public last week, with Mr Trump calling for her to resign.

“I have no intention of being bullied to step down from my position because of some questions raised in a tweet,” she said on Aug 20.

“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.”

It is unclear how the matter might play out from here.

Members of other independent US agencies who have challenged Mr Trump’s efforts to fire them have had to conduct their own legal challenges at their own expense, a potentially costly undertaking with little clarity as to the likely outcome.

The Fed next meets on Sept 16 and 17.

Mr 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 10-year notes – sensitive to inflation risks – rose briskly.

The reaction reflects expectations that the move may add to the likelihood the Fed policy rate may drop, but at the expense of its commitment to thwart inflation. Academic research has consistently found that policymakers allowed to manage inflation independent of political influence generally achieve better outcomes, a principle that may now be tested at the world’s most influential central bank.

“It speaks to the determination of this 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’ Mr Tim Duy.

“It’s another reason to believe... that rates will be lower than would otherwise be the case.”

Pressure campaign

Mr Trump has

repeatedly berated Federal Reserve chairman Jerome

Powell

over not lowering interest rates, though he has halted threats to fire him from a term that ends in a little under nine months anyway.

His focus last week turned to Dr Cook, whose departure would allow Mr Trump to select his fourth pick to the Fed’s seven-member board, including governor Christopher Waller and vice-chairwoman for supervision Michelle Bowman, named in his first term, and the pending nomination of Council of Economic Advisers chief Stephen Miran to a currently open seat.

Dr 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 Dr 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 Dr 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