In an unprecedented move, President Donald Trump announced the removal of Federal Reserve Governor Lisa Cook, citing allegations of mortgage fraud. The announcement, made through a letter posted on Truth Social late Monday, has already shaken markets and sparked a constitutional clash over the independence of the U.S. central bank.
Trump’s decision is notable not only because Cook is a key member of the Fed’s Board of Governors, but also because no president in modern history has ever attempted to dismiss a sitting Fed governor. Governors are appointed to 14-year terms to shield the institution from political pressure, a safeguard that is now being tested.
The Allegations Against Lisa Cook
The controversy began when Bill Pulte, the Trump-appointed director of the Federal Housing Finance Agency, accused Cook of making false statements on mortgage applications. In a letter to the Attorney General last week, Pulte alleged that Cook held mortgages on two different properties one in Michigan and another in Georgia and declared both as her primary residence.
Such a move, if true, could constitute mortgage fraud by enabling her to secure more favorable terms from lenders. However, Cook has strongly denied wrongdoing. In a statement released by the Federal Reserve, she said she has “no intention of being bullied into resigning” and is in the process of gathering documentation to provide accurate information regarding her financial history.
Trump’s Letter and Authority
In his letter, Trump invoked both the U.S. Constitution’s Article II powers and the Federal Reserve Act of 1913, claiming authority to remove Cook effective immediately.
“Pursuant to my authority under Article II of the Constitution of the United States and the Federal Reserve Act of 1913, as amended, you are hereby removed from your position on the Board of Governors of the Federal Reserve, effective immediately,” the statement read.
The move echoes Trump’s broader effort to exert more direct influence over the central bank, an institution he has long criticized for not cutting interest rates fast enough to boost economic growth.
Market Reaction
Markets responded swiftly to the news, reflecting deep investor anxiety over the independence of the Federal Reserve.
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The U.S. Dollar Index fell 0.2% late Monday.
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Treasury yields dropped on shorter maturities while long-term yields edged higher, signaling uncertainty over monetary policy direction.
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U.S. stock futures slid slightly, with S&P 500 futures down 0.1%, Nasdaq futures down 0.2%, and Dow futures lower by 0.1%.
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Gold prices climbed 0.3% to $3,376 per ounce, while the Japanese yen gained 0.2% as investors sought safe-haven assets.
The immediate moves highlight growing concern that Trump’s attempt to remove Cook could undermine confidence in the Fed’s autonomy long seen as essential to stable economic policy.
Legal and Constitutional Collision
The legality of Trump’s decision is far from settled. Under the law, Federal Reserve governors can only be removed “for cause”, such as proven misconduct or neglect of duty. Legal experts suggest the allegations against Cook may not meet this standard, raising questions about whether Trump’s order will stand.
The issue appears destined for the Supreme Court, which has previously ruled on presidential removal powers for independent agencies. Earlier this year, the Court allowed Trump to temporarily remove members of the National Labor Relations Board and Merit Systems Protection Board while litigation continued. However, the conservative majority noted that the Federal Reserve’s historical independence might place it in a different category.
In one unsigned opinion, the Court stated:
“The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”
This language suggests that the justices may view Fed governors’ job protections differently from other regulatory officials, setting up a high-stakes legal showdown.
Implications for Fed Policy
The timing could hardly be more sensitive. The Federal Reserve’s Open Market Committee (FOMC) is scheduled to meet in less than a month to decide on interest rates. Chair Jerome Powell has repeatedly emphasized that rate decisions will be made “solely based on data” and not political pressure.
In his Jackson Hole speech just last week, Powell said:
“FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach.”
Still, Trump’s actions may cast a shadow over upcoming deliberations. Investors worry that if Cook’s removal holds, it could embolden further attempts to influence Fed policy potentially undermining the credibility of its fight to balance inflation and employment.
Broader Political Context
Lisa Cook’s removal attempt also carries symbolic weight. Appointed by President Joe Biden and confirmed in 2023, Cook made history as the first Black woman to serve on the Federal Reserve’s Board of Governors. Her expertise in economics and innovation policy has been praised by many in the academic and financial communities.
Trump, meanwhile, has already nominated Stephen Miran, a former Treasury official, to another Fed seat and continues to push for more accommodative monetary policy. Analysts say his attempt to oust Cook is part of a broader strategy to reshape the Fed in his vision favoring looser policy to stimulate growth ahead of the 2026 election cycle.
What Comes Next
The battle over Lisa Cook’s position is far from over. The Federal Reserve has not officially acknowledged her removal, and legal experts expect Cook to challenge the decision in court. The White House and the Fed have yet to release official statements.
If the courts side with Trump, it could mark a historic shift in presidential power over independent agencies. If not, it may reaffirm the longstanding principle that the Federal Reserve must remain independent to safeguard the U.S. economy.
Either way, the saga has already rattled markets, unsettled investors, and raised new doubts about the future of U.S. monetary policy.
