Federal Reserve governor Lisa Cook to sue Trump to thwart firing bid

Federal Reserve Governor Lisa Cook will file a lawsuit challenging her removal by US President Donald Trump, setting up a potential standoff between the President and the US central bank.

Trump's announcement that he's firing Federal Reserve Governor Lisa Cook is seen as an unprecedented move and a sharp escalation in his effort to exert greater control over what has long been considered an institution independent of day-to-day politics.

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Fed’s independence at stake

Cook will sue President Donald Trump’s administration to try to prevent him from firing her, her lawyer said on Tuesday (August 26).

“President Trump purported to fire me when no cause exists under the law, and he has no authority to do so,” Cook said in an emailed statement. “I will not resign,” she said

The announcement heightens the likelihood of a high-stakes legal battle that could ultimately reach the Supreme Court and potentially redefine the boundaries of presidential authority over the central bank.

At the heart of the dispute is the Federal Reserve’s independence from day-to-day politics, something most economists regard as essential to maintaining low long-term inflation and stable interest rates.

“President Trump has no authority to remove Federal Reserve Governor Lisa Cook,” said Abbe Lowell, Cook’s lawyer. “His attempt to fire her, based solely on a referral letter, has no factual or legal foundation. We will be filing a lawsuit to challenge this unlawful action,” he added.

Trump fires Cook

Trump said in a letter posted on his Truth Social platform that he is removing Cook effective immediately because of allegations by one of his supporters that she committed mortgage fraud.

Trump says he is ready to go to court and carry out his ordered firing of Federal Reserve Governor Lisa Cook. Cook responded to Trump’s termination order by preparing a court challenge against what she called the president’s “illegal action.”

Asked about that during his Cabinet meeting, Trump was dismissive, saying, “You always have legal fights.” He added, “She seems to have had an infraction, and you can't have an infraction.”

He said, “We have some very good people in mind” to replace Cook if she is removed.

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Push for greater control

Speaking at the White House, Trump emphasised that his goal is to exert more control over the Federal Reserve to get it to lower interest rates. He has previously stated that he would appoint only those to the Fed’s board who support lower borrowing costs.

“We’ll have a majority very shortly, so that’ll be good,” Trump said, referring to the Fed’s governing board. “Once we have a majority, housing will swing,” he added, blaming sluggish home sales on high mortgage rates.

For months, Trump has sharply criticised Fed Chair Jerome Powell for keeping the central bank’s key short-term interest rate unchanged at around 4.3 percent, well above the near-zero levels during the COVID-19 pandemic.

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Fed responds

On Tuesday, the Fed broke its silence on the controversy, saying it would “abide by any court decision.” However, the statement stopped did not explicitly criticise Trump’s decision to fire Cook.

The Fed also reiterated its longstanding independence from political interference. “Congress, through the Federal Reserve Act, directs that governors serve in long, fixed terms and may be removed by the president only ‘for cause,’” the central bank said.

“Long tenures and removal protections for governors serve as a vital safeguard, ensuring that monetary policy decisions are based on data, economic analysis, and the long-term interests of the American people,” it added.

If Trump ultimately succeeds in ousting Cook from the Fed’s board of governors, it could mark a significant erosion of the central bank’s political independence.

(With inputs from agencies)