Trump’s War on the Fed: A Legal and Constitutional Showdown

U.S. Treasury Secretary Scott Bessent has called on the Federal Reserve to investigate allegations of mortgage fraud against Federal Reserve Governor Lisa Cook, following a referral from the Federal Housing Finance Agency (FHFA). The move comes amid escalating tensions between President Donald Trump and the Fed, with Trump asserting his authority to remove Cook from her position if she does not resign. Cook, who was appointed by Joe Biden in 2022, has denied the allegations, stating she has no intention of being "bullied" into stepping down and is gathering information to respond to the claims.

In a letter addressed to Cook, Trump criticized her "deceitful and potentially criminal conduct in a financial matter," expressing a lack of confidence in her integrity. FHFA Director William Pulte, who was appointed by Trump, first raised the allegations last week, alleging that Cook may have misrepresented her primary residence status on mortgage applications in 2021. Pulte claimed that this could have allowed Cook to secure more favorable mortgage terms, as second homes typically face higher interest rates. The Department of Justice has indicated it is taking the matter "very seriously," though no formal charges have been filed.

Cook’s legal team has challenged the legitimacy of Trump’s authority to remove her from the Fed board, arguing that the president’s "reflex to bully" lacks legal basis and proper procedure. Legal experts have noted that while the law permits the removal of a Fed governor "for cause," such actions typically require a formal process allowing the accused to present their defense. The issue has sparked a broader debate over the independence of the Federal Reserve, with critics warning that Trump’s actions could undermine the central bank’s autonomy in managing inflation and setting monetary policy.

Bessent, who has been vocal about reshaping the U.S. economy through strategic investments in critical industries, emphasized the need for the Fed to act swiftly on the allegations. Speaking to Bloomberg, Bessent stated, "The American people must be able to have full confidence in the honesty of the members entrusted with setting policy and overseeing the Federal Reserve." His comments reflect a broader administration effort to align key economic institutions with its policy priorities, including increased scrutiny of the Fed’s leadership and decision-making processes.

The potential removal of Cook marks the first attempt in U.S. history for a president to fire a sitting Federal Reserve governor. If successful, it could shift the balance of power on the Fed’s seven-member board, giving Trump appointees a 4–3 majority. The legal battle over Cook’s removal is expected to reach the Supreme Court, with significant implications for the future of U.S. monetary policy and the separation of powers.

Democratic lawmakers have condemned the move as an "authoritarian power grab," with Senator Elizabeth Warren calling it an illegal attempt to "undermine the independence of the Federal Reserve." The controversy has already caused market uncertainty, with stock futures dipping and the U.S. dollar weakening against major currencies. Investors are closely watching how the situation unfolds, as it could influence the Fed’s ability to maintain inflation control and manage interest rates in the coming months.

Source: [1] Trump sacks US Fed Governor Lisa Cook over mortgage fraud allegations (https://www.scmp.com/news/world/united-states-canada/article/3323125/trump-sacks-us-fed-governor-lisa-cook-over-mortgage-fraud-allegations) [2] US Federal Reserve governor Lisa Cook refuses to stand down after President Donald Trump says he is firing her (https://www.abc.net.au/news/2025-08-26/trump-says-hes-firing-federal-govenor-lisa-cook/105699090)