Embattled Fed Governor Lisa Cook says she'll sue Trump to keep her job

Trump's unprecedented effort to fire Cook is likely to end up at the Supreme Court and could more clearly define the limits of the president's legal authority over the traditionally independent institution. The Fed exercises expansive power over the U.S. economy by adjusting a short-term interest rate that can influence broader borrowing costs for things like mortgages, auto loans and business loans.

The Federal Reserve weighed in Tuesday for the first time on the firing, saying it would "abide by any court decision."

The Fed also defended its independence from politics: "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."

But the Fed's statement did not answer a key question about Cook: Namely, whether she is continuing to serve at the Fed while the legal case plays out. Nor did it explictly criticize Trump's attempt to fire her.

Trump, a Republican, has repeatedly demanded that Chair Jerome Powell and the Fed's rate-setting committee cut its rate to boost the economy and reduce interest payments on the government's $37 trillion debt pile.

If Trump succeeds in removing Cook from the Fed's board of governors, it could erode the Fed's political independence, which is considered critical to its ability to fight inflation because it enables the Fed to take unpopular steps like raising interest rates. A less-independent Fed could leave Americans paying higher interest rates, because investors would demand a higher yield to own bonds to offset potentially greater inflation in the future, pushing up borrowing costs throughout the economy.

Who's on the board?

Trump seems to have since focused his attention on gappointed two members of the board, Christopher Waller and Michelle Bowman, in his first term and has named Steven Miran, a top White House economist, to replace Gov. Adriana Kugler, who stepped down unexpectedly Aug. 1. If Miran's nomination is approved by the Senate and Trump is able to replace Cook, he would have a 4-3 majority on the Fed's board.

Trump criticized Powell at a cabinet meeting Tuesday and said "we'll have a majority very shortly" on the Fed.

The Fed's board oversees financial regulations and also votes on all interest rate decisions. Five of the Fed's 12 regional bank presidents also have a vote, with one of those five always being the New York Fed and the other four serving on a rotating basis.

Legal experts say the Republican president's claim that he can fire Cook, who was appointed by Democratic President Joe Biden in 2022, is on shaky ground. But it's an unprecedented move that hasn't played out in the courts before, and the Supreme Court this year has been much more willing to let the president remove agency officials than in the past.

"It's an illegal firing, but the president's going to argue, 'The Constitution lets me do it,'" said Lev Menand, a law professor at Columbia University and author of a book about the Fed. "And that argument's worked in a few other cases so far this year."

Menand said the Supreme Court construes the Constitution's meaning, and "it can make new constitutional law in this case."

Allegations against Cook

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 in Atlanta — in 2021 to get better mortgage terms. Mortgage rates are often higher on second homes or those bought to rent.

The most likely next step for Cook is to seek an injunction against Trump's order that would allow her to continue her work as a governor. But the situation puts the Fed in a difficult position.

"They have their own legal obligation to follow the law," Menand said. "And that does not mean do whatever the president says. ... The Fed is under an independent duty to reach its own conclusions about the legality of Lisa Cook's removal."

Trump said in a letter posted on his Truth Social platform late Monday that he was removing Cook effective immediately because of allegations she committed mortgage fraud.

Cook says she won't resign

Cook said Monday night that she would not step down. "President Trump purported to fire me 'for cause' when no cause exists under the law, and he has no authority to do so," she said in an emailed statement. "I will not resign."

The courts have allowed the Trump administration to remove commissioners at the National Labor Relations Board, the Merit System Protection Board and other independent agencies. Yet Cook's case is different.

Those dismissals were based on the idea that the president needs no reason to remove agency heads because they exercise executive power on his behalf, the Supreme Court wrote in an unsigned order in May.

In that same order, the court suggested that Trump did not have the same freedom at the Fed, which the court called a "uniquely structured, quasi-private entity."

Removing governors 'for cause'

The law that governs the central bank, the Federal Reserve Act, includes a provision allowing for the removal of Fed governors "for cause."

"For cause" is typically interpreted to mean malfeasance or dereliction of duty by an official while in office, not something done before that person is appointed, Menand said.

To establish a "for cause" firing also requires a finding of fact, said Scott Alvarez, the Fed's former general counsel and now adjunct professor at Georgetown Law.

"We know there's allegations by Bill Pulte, but Lisa has not been able to respond yet," Alvarez said. "So we don't know if they're true. Allegations are not cause.''

Lowell said Monday night that Trump's "reflex to bully is flawed and his demands lack any proper process, basis or legal authority," adding, "We will take whatever actions are needed to prevent his attempted illegal action."

Cook is the first Black woman to serve as a governor. She was a Marshall Scholar and received degrees from Oxford University and Spelman College, and she has taught at Michigan State University and Harvard University's Kennedy School of Government.