Donald Trump has taken a bold step by dismissing Federal Reserve Governor Lisa Cook, intensifying his campaign to influence the US central bank and potentially compromising its independence.
For several months, Trump has urged the Fed to reduce interest rates, criticizing Fed Chair Jerome Powell for delays and calling him a “moron.”
Despite this, the Fed has maintained interest rates while evaluating the impact of Trump’s extensive tariffs on inflation.
By removing Cook, Trump might seek to sway the Fed’s board with a new appointee to align interest rates with his preferences.
After requesting her resignation last week, Trump announced on Truth Social that Cook was dismissed “effective immediately,” citing alleged false statements in her mortgage dealings as the reason.
Cook, however, contested Trump’s authority, stating she would not resign and that his action was legally unfounded.
“President Trump attempted to dismiss me ‘for cause’ without legal grounds,” Cook, the first Black woman on the Fed’s board, declared in a statement to AFP.
Her lawyer, Abbe Lowell, confirmed plans to challenge the dismissal legally.
The allegations included claims of dual primary residences in Michigan and Georgia, but Cook faces no criminal charges, and these issues predate her current role.
Independence at Risk?
This potential legal battle could test presidential powers under Trump’s renewed leadership, as he seeks to assert control supported by government loyalists.
While the Supreme Court recently allowed Trump to dismiss members of other independent boards, it maintained a protective stance on the Fed.
Federal law states that Fed officials can only be removed for “cause,” generally interpreted as misconduct or duty neglect.
David Wessel from Brookings noted that Fed independence from the White House “is being eroded,” suggesting Trump aims to secure a board majority to reduce rates and control the bank.
Wessel cautioned that political control over central banks historically leads to inflation and financial instability.
This could undermine the Fed’s inflation-fighting reputation, with global investors potentially demanding higher returns on US debt.
The Fed has not yet commented on the situation.
Power Dynamics
Senator Elizabeth Warren criticized Trump’s actions as “an authoritarian power grab,” urging legal intervention to overturn it.
The Fed has kept interest rates between 4.25% and 4.50% since last December, though Powell hinted at possible reductions in the upcoming September meeting.
Trump had also previously threatened Powell’s position over expensive Fed HQ renovations but later retracted.
Meanwhile, Trump has selected Stephen Miran, head of his economic panel, for a vacant Fed board seat.
Matthew Martin from Oxford Economics predicts that even with Cook’s removal, the Fed’s 12-member voting process may not align with Trump’s rate reduction goals.
Cook, appointed in 2022 and reappointed in 2023, previously served on Obama’s Council of Economic Advisers.
