No president has sought to fire a Fed governor before until Trump posted a letter on social media on Monday (US time) saying that Cook was fired. Trump said the reason for her removal were allegations that she committed mortgage fraud in 2021, before she was appointed to the board. Most observers expect the case to end up at the Supreme Court.
The Supreme Court has signalled that the president can’t fire Fed officials over policy differences, but can do so “for cause,” typically meaning misconduct or neglect of duty. Cook has not been charged with any crime.
Trump has said he will only appoint people to the Fed who will support lower rates.Credit: Bloomberg
The lawsuit argues that the allegations don’t involve misconduct by Cook while in office and haven’t been proven. Cook should also have been given a chance to answer the charges, the suit says.
“The unsubstantiated and unproven allegation that Governor Cook ‘potentially’ erred in filling out a mortgage form prior to her Senate confirmation—does not amount to ’cause,‘” the lawsuit says.
The lawsuit also denies the charges against Cook, without providing supporting detail.
“Neither the type of ‘offence’ the President cited nor the threadbare evidence against Governor Cook would constitute ’cause’ for removal even if the President’s allegations were true—which they are not,” the lawsuit said.
The president’s decision comes as he has repeatedly attacked Fed chair Jerome Powell and the other members of the Fed’s interest-rate setting committee for not cutting the short-term interest rate they control more quickly. It currently stands at 4.3 per cent , after Fed policymakers reduced it by a full percentage point late last year. Trump has said he thinks it should be as low as 1.3 per cent , a level that no Fed official and few economists support.
The suit argues that the allegations of mortgage fraud are simply a pretext to fire Cook because she hasn’t voted to lower interest rates: “The mortgage allegations against her are pretextual, in order to effectuate her prompt removal and vacate a seat for President Trump to fill and forward his agenda to undermine the independence of the Federal Reserve.”
“The President cannot rely on brute force or clever shortcuts to circumvent Congress to bend the institution to his will,” Lowell wrote in a request for an emergency order blocking the firing. “History provides no sanction for an attempt to short-circuit ‘for cause’ removal protections by conjuring up unfounded allegations of past wrongdoing.
The lawsuit also seeks to block the Federal Reserve from accepting the firing and asks the court to require the Fed and Powell to “treat Governor Cook as a member of the Board of Governors.”
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Powell signalled last week that the central bank was leaning toward cutting its rate at its next meeting September 16-17. Still, it’s likely that the Fed will cut its key rate more slowly than Trump wants, and perhaps to as low as 3.25 per cent or so — higher than Trump would prefer.
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 prior to joining the board she taught at Michigan State University and Harvard University’s Kennedy School of Government.
