Trump fires Fed Governor Lisa Cook, opening new front in fight for control over U.S. central bank

Board of Governors of the Federal Reserve member Lisa Cook, speaks during a conversations with leaders from organizations that include nonprofits, small businesses, manufacturing, supply chain management, the hospitality industry, and the housing and education sectors at the Federal Reserve building, Sept. 23, 2022, in Washington. (AP Photo/Manuel Balce Ceneta)

WASHINGTON — U.S. President Donald Trump said Monday night that he’s firing U.S. Federal Reserve Governor Lisa Cook, an unprecedented move that would constitute a sharp escalation in his battle to exert greater control over what has long been considered an institution independent from day-to-day politics.

Trump said in a letter posted on his Truth Social platform that he is removing Cook effective immediately because of allegations that she committed mortgage fraud. Bill Pulte, a Trump appointee to the agency that regulates mortgage giants Fannie Mae and Freddie Mac, made the accusations last week.

Pulte alleged that Cook had claimed two primary residences -- in Ann Arbor, Michigan, and Atlanta -- in 2021 to get better mortgage terms. Mortgage rates are often higher on second homes or those purchased to rent.

Trump’s move is likely to touch off an extensive legal battle that will probably go to the Supreme Court and could disrupt financial markets, potentially pushing interest rates higher.

The independence of the Fed is considered critical to its ability to fight inflation because it enables it to take unpopular steps like raising interest rates. If bond investors start to lose faith that the Fed will be able to control inflation, they will demand higher rates to own bonds, pushing up borrowing costs for mortgages, car loans and business loans.

Legal scholars noted that the allegations are likely a pretext for the president to open up another seat on the seven-member board so he can appoint a loyalist to push for his long-stated goal of lower interest rates.

Fed governors vote on the central bank’s interest rate decisions and on issues of financial regulation. While they are appointed by the president and confirmed by the Senate, they are not like cabinet secretaries, who serve at the pleasure of the president. They serve 14-year terms that are staggered in an effort to insulate the Fed from political influence.

No president has sought to fire a Fed governor before. In recent decades, presidents of both parties have largely respected Fed independence, though Richard Nixon and Lyndon Johnson put heavy pressure on the Fed during their presidencies -- mostly behind closed doors.

Still, that behind-the-scenes pressure to keep interest rates low, the same goal sought by Trump, has widely been blamed for touching off rampant inflation in the late 1960s and ’70s.

The announcement came days after Cook said she wouldn’t leave despite Trump previously calling for her to resign. Senate Democrats had expressed support for Cook, who has not been charged with wrongdoing.

“The Federal Reserve has tremendous responsibility for setting interest rates and regulating reserve member banks. The American people must have the full confidence in the honesty of the members entrusted with setting policy and overseeing the Federal Reserve,” Trump wrote in a letter addressed to Cook, a copy of which he posted online. “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.”

Trump argued that firing Cook was constitutional, even if doing so will raise questions about control of the Fed as an independent entity.

“The executive power of the United States is vested to me as President and, as President, I have a solemn duty that the laws of the United States are faithfully enacted,” the president wrote in the letter to Cook. “I have determined that faithfully enacting the law requires your immediate removal from office.”

Among the unresolved legal questions are if Cook could be allowed to remain in her seat while the case plays out. She may have to fight the legal battle herself, as the injured party, rather than the Fed.

In the meantime, Trump’s announcement drew swift rebuke from advocates and former Fed officials who worry that Trump is trying to exert too much power and control over the nation’s central bank.

“The President’s effort to fire a sitting Federal Reserve Governor is part of a concerted effort to transform the financial regulators from independent watchdogs into obedient lapdogs that do as they’re told. This could have real consequences for Americans feeling the squeeze from higher prices,” Rohit Chopra, former director of the Consumer Financial Protection Bureau, said in a statement.

It is the latest effort by the administration to take control over one of the few remaining independent agencies in Washington. Trump has repeatedly attacked the Fed’s chair, Jerome Powell, for not cutting its short-term interest rate, and even threatened to fire him.

Forcing Cook off the Fed’s governing board would provide Trump an opportunity to appoint a loyalist. Trump has said he would only appoint officials who would support cutting rates.

Powell signaled last week that the Fed may cut rates soon even as inflation risks remain moderate. Meanwhile, Trump will be able to replace Powell in May 2026, when Powell’s term expires. However, 12 members of the Fed’s interest-rate setting committee have a vote on whether to raise or lower interest rates, so even replacing the chair might not guarantee that Fed policy will shift the way Trump wants.

Chris Rugaber, The Associated Press