Trump Aims to Oust Fed Governor Lisa Cook Amid Clash Over Independence

Federal Reserve Governor Lisa Cook may face removal if she does not resign, following allegations of mortgage fraud brought by Federal Housing Finance Agency Director William Pulte. President Donald Trump has explicitly stated he will fire Cook if she does not step down, calling her actions “bad.” Pulte accused Cook of falsifying bank documents and property records to secure more favorable loan terms. Cook, however, denied the allegations and stated she would not resign under pressure. She emphasized that the allegations relate to a mortgage application from four years prior to her joining the Federal Reserve. The Federal Reserve has not commented on the matter.

This potential removal could open a third seat on the Federal Reserve Board of Governors for a Trump appointee. With Cook’s term set to expire in 2038, her removal would allow Trump to install a loyalist earlier than scheduled. Cook’s departure would add to Trump’s influence on the board, which already includes appointees Michelle Bowman and Christopher Waller. The White House’s pressure on the Federal Reserve reflects broader tensions over central bank independence. Trump has long criticized Fed Chair Jerome Powell for not lowering interest rates, and earlier this year, he attempted to replace a departing board member with his top economic adviser, Stephen Miran.

The implications of political interference in the Federal Reserve extend beyond the U.S. economy. Central banks globally are facing political pressure amid post-pandemic inflation and fiscal constraints, but the U.S. scenario is uniquely concerning due to the Fed’s role in maintaining global financial stability. Legal safeguards in many advanced economies require legislative approval for the dismissal of central bank chiefs, while the U.S. allows the president to remove the Fed chair “for cause.” This provision, often interpreted to cover misconduct rather than policy disagreements, has not been tested in court. Historically, an independent Federal Reserve has been credited with managing inflation effectively, as seen in the 1980s under Paul Volcker, who raised rates to near 20% to curb inflation.

Currently, the Fed remains cautious as it weighs the potential for rate cuts. In a recent speech at the Jackson Hole symposium, Powell hinted at possible rate reductions but emphasized the need to monitor inflation risks tied to Trump’s tariff policies. Despite Trump’s push for aggressive rate cuts, Powell and several Fed officials are focused on the economy’s weakening growth and the need to address stubborn inflation. The Fed’s independence is seen as critical to maintaining market confidence and preventing inflationary spirals. If the Fed were to appear influenced by political pressure, it could undermine its credibility and destabilize financial markets.

Analysts note that the credibility of the Fed is closely tied to the dollar’s role as the world’s reserve currency. Should political interference persist, it could lead to capital flight and currency volatility, as seen in countries like Turkey and Argentina. While the U.S. benefits from the dollar’s dominance, this status is not guaranteed and depends on the Fed’s ability to maintain its independence. As Trump continues to test the boundaries of his authority over the central bank, the Fed’s ability to act in the public interest—rather than political interests—remains a key focus for economists and investors.

Source: [1] Trump says he will fire Fed governor Lisa Cook if she doesn't resign (https://www.nbcnews.com/business/economy/trump-says-will-fire-fed-governor-cook-doesn-t-resign-rcna226554) [2] Trump's challenges to the Fed's independence loom over Jackson Hole symposium (https://www.atlanticcouncil.org/blogs/econographics/trumps-challenges-to-the-feds-independence-loom-over-jackson-hole-symposium/) [3] Why the Federal Reserve has historically been (https://apnews.com/article/federal-reserve-powell-trump-independence-5c2ec1a37dc4aca6a59544f8b4513a45)