Federal Reserve Governor Lisa Cook sues Trump for his attempt to fire her

Federal Reserve Governor Lisa Cook has filed a lawsuit arguing that United States President Donald Trump has no power to remove her from office, setting up a legal battle that could reset long-established norms between the president and the central bank.

The lawsuit was filed on Thursday, three days after Trump published a letter saying Cook was removed from her job.

In the lawsuit, Cook argues that Trump violated federal law in attempting to remove her from her position. Under the Federal Reserve Act of 1913, presidents may only remove a Federal Reserve governor “for cause”, a high bar generally understood to mean grave misconduct or dereliction of duty.

As the country’s central banking system, the Federal Reserve is considered independent from political branches of government like the presidency or Congress. In theory, that allows it to set monetary policy without political influence.

But concerns about whether the Fed can maintain its independence from the White House under Trump could have a ripple effect throughout the global economy. The US dollar stumbled against other major currencies after Trump first said he would remove Cook.

“President Trump’s attempt to fire Dr Lisa Cook is continuing to add uncertainty and chaos to the US economy,” Sameera Fazili, the former deputy director of the National Economic Council, told Al Jazeera.

Fazili, who previously served as a staff member at the Federal Reserve Bank of Atlanta, explained that disruptions at the central bank would negatively impact US businesses.

“An economy needs stable and predictable laws to function smoothly. That’s how you earn investor trust and raise capital for your businesses,” she said, adding: “I applaud Dr Cook for standing up and fighting for the rule of law.”

Cook’s lawsuit is likely headed to the Supreme Court, where a conservative majority has at least tentatively allowed Trump to fire officials from other agencies.

But the court recently signalled that the Federal Reserve may qualify for a rare exception.

In its May decision in the case Trump v Wilcox, the Supreme Court argued that Federal Reserve governors are distinct from other federal employees, because the bank “is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States”.

Mortgage allegations

Still, Trump, a Republican president, has argued that he does have cause to remove Cook from her post.

In his August 25 letter, he accused Cook of committing mortgage fraud in 2021, a year before she joined the Federal Reserve’s governing body.

“The American people must be able to have full confidence in the honesty of the members entrusted with setting policy and overseeing the Federal Reserve,” he wrote.

“In light of your deceitful and potentially criminal conduct in a financial matter, they cannot and I do not have such confidence in your integrity.”

The Federal Reserve Act does not define what removal “for cause” means, nor does it lay out any standard or procedures for removal.

Trump, however, has argued that Cook’s actions amount to “gross negligence”, though she has denied the allegations.

No president has ever removed a Federal Reserve board member, and the legal standard governing removals from the central bank has never been tested in court.

A Federal Reserve spokesperson said on Tuesday, before the lawsuit was filed, that the bank would abide by any court decision.

Cook was appointed to the Federal Reserve in 2022 by former President Joe Biden, a Democrat, and is the first Black woman to serve on the central bank’s governing body.

Questions about Cook’s mortgages were first raised in August by William Pulte, a Trump appointee who is the director of the Federal Housing Finance Agency.

Pulte referred the matter to Attorney General Pamela Bondi for investigation.

Cook took out the mortgages in Michigan and Georgia in 2021 when she was an academic, researching and teaching economics.

An official financial disclosure form for 2024 lists three mortgages held by 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.

Some experts have questioned whether transactions that preceded Cook’s appointment to the Federal Reserve would be adequate cause to remove her. After all, Cook’s mortgages were in the public record when she was vetted and confirmed by the Senate in 2022.

Trump has made several allegations of mortgage fraud against perceived political adversaries, including Senator Adam Schiff of California and New York Attorney General Letitia James, both Democrats.

Like Cook, Schiff and James have denied wrongdoing.

Pushing for influence on the Federal Reserve

For her part, Cook said in a statement earlier this week that “no causes exist under the law, and [Trump] has no authority” to remove her from her job.

Her lawyers have also said that Trump’s “demands lack any proper process, basis or legal authority”.

Since Trump took office for a second term in January, critics have accused him of seeking broad powers beyond the presidency, across all branches of government.

He has sought to remove inspectors general and the heads of independent agencies he felt were unfriendly to his policies, despite federal laws that protect their employment.

Such laws require the president to clearly define the cause for removing federal employees. Those causes include neglect of duty, malfeasance, and inefficiency.

While the Federal Reserve Act does not identify those causes in its terms, they could be used as a guide for courts to determine if Trump can legally fire Cook.

In Thursday’s lawsuit, Cook’s lawyers said nothing she has done would amount to such “cause”.

“Neither the type of ‘offense’ the President cited nor the threadbare evidence against Governor Cook would constitute ‘cause’ for removal even if the President’s allegations were true – which they are not,” they wrote.

“The President would not have ‘cause’ to remove a Federal Reserve Governor even if he possessed smoking gun evidence that she jaywalked in college.”

The lawsuit also argues that the president violated Cook’s right to due process by attempting to terminate her position without notice.

Trump has faced other lawsuits for attempting to remove federal officials, including in the Trump v Wilcox case.

That case concerned Gwynne Wilcox, the first Black woman to sit on the National Labor Relations Board, which hears private-sector labour disputes.

Cook’s departure from the Federal Reserve, however, would allow Trump to name his fourth pick to the bank’s seven-member board.

The president has repeatedly berated Federal Reserve Chair Jerome Powell for not lowering interest rates and for his alleged mishandling of a multibillion-dollar renovation project.

While Trump has previously threatened to remove Powell before his term ends in May, he has since backed away from those remarks.

A full term for a Federal Reserve governor like Cook, meanwhile, is 14 years.