Trump Fires Fed Governor Lisa Cook Spark Market Turbulence and Legal Challenge

President Donald Trump has intensified his conflict with the Federal Reserve by firing Governor Lisa Cook, raising alarms about the central bank’s independence and the broader implications for U.S. financial authority. The move, justified by Trump as a constitutional prerogative, has been widely criticized as a violation of the Federal Reserve Act and a dangerous erosion of the separation between political and economic policymaking [1].

The markets reacted swiftly, with futures for the S&P 500 dipping 0.13%, the 10-year Treasury yield rising 1.4%, and the U.S. dollar falling 0.16% against the euro and 0.29% against the yen [1]. Analysts suggest that investors are factoring in the risk of the Fed becoming a political tool rather than an independent institution, which could lead to higher bond yields and further questions about the dollar’s status as the world’s top reserve currency [1].

In a letter posted on his Truth Social account, Trump cited his authority under Article II of the U.S. Constitution and the 1913 Federal Reserve Act to remove Cook from her post. Legal interpretations, however, suggest such removals require “for cause” justification, typically meaning malfeasance or negligence [1]. The dispute is expected to eventually reach the Supreme Court, where the special legal status of Fed officials is already under scrutiny [1].

This is the latest in a series of escalating tensions between Trump and the Fed. Since returning to the White House, Trump has consistently pressured Chair Jerome Powell to cut interest rates, publicly criticizing him for not doing so. Though he previously hinted at firing Powell, he has so far refrained from doing so. However, his aggressive stance toward Cook signals a broader strategy to reshape the Fed’s leadership and priorities [1].

Cook has resisted the pressure, stating that she would not resign under threat and would instead defend herself against allegations of mortgage fraud made by an administration housing official. Her defiance highlights the growing rift between the executive branch and the Fed, with the central bank now under increasing pressure to maintain its institutional integrity [1].

Trump’s actions are not limited to Cook. He has already appointed Stephen Miran—chair of the White House’s Council of Economic Advisers—to fill a vacancy on the Fed board. Miran’s appointment has raised alarms among analysts, who view it as an existential threat to the Fed due to his co-authorship of a 2024 paper advocating for structural changes that would reduce the central bank’s independence [1].

Should Trump continue to name additional governors, he could gain a majority on the seven-member board. While that would not directly influence the 12-member Federal Open Market Committee, it would give his appointees greater control over the Fed’s budget, staffing, and even the selection of regional Fed presidents, whose five-year terms expire in February [1].

The broader political battle is also intensifying. Sen. Elizabeth Warren, the ranking Democrat on the Senate Banking Committee, called Trump’s move an “authoritarian power grab” and vowed to fight it in court [1]. The process to replace Powell as Fed chair is now expected to become a high-stakes legislative battle, with implications for the Fed’s future direction and global economic stability [1].

As the conflict unfolds, the Federal Reserve faces a critical test of its institutional resilience. The central bank has long been considered a pillar of U.S. and global financial markets, and any perceived politicization could have far-reaching consequences for monetary policy and investor confidence [1]. The coming months will determine whether the Fed can maintain its independence—or whether it will become a battleground in Trump’s broader campaign to reshape economic governance.

Source: [1] Fortune (https://fortune.com/2025/08/25/trump-fed-war-lisa-cook-central-bank-independence-powell-supreme-court/)