WASHINGTON — Federal Reserve Gov. Lisa Cook will sue President Donald Trump's administration to try to prevent him from firing her, her lawyer said Tuesday.
"President Trump has no authority to remove Federal Reserve Governor Lisa Cook," said Abbe Lowell, a longtime Washington lawyer who has represented figures from both major political parties. "His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis. We will be filing a lawsuit challenging this illegal action."
Trump, meanwhile, underscored in remarks at the White House that his goal is to seize more power over the Fed to get it to lower interest rates. He previously said he would only appoint people to the Fed's board who will support lower borrowing costs.
“We'll have a majority very shortly, so that'll be good,” Trump said, referring to the Fed's governing board. “Once we have a majority, housing will swing,” he added, blaming slow housing sales on high mortgage rates.
Trump criticized Fed Chair Jerome Powell for months because the Fed has left its key short-term interest rate unchanged at about 4.3% — relatively high compared with its level during the COVID-19 pandemic, when it was almost zero.
But now Trump turned his attention to the broader Federal Reserve system. The committee that sets interest rates has 12 voting members, with seven coming from the board and the other five drawn from the presidents of the 12 regional Fed banks.
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.
Also Tuesday, the Fed weighed in for the first time on the firing, saying it would “abide by any court decision.”
The Fed also defended its longtime 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."
A spokesperson said the Fed deferred any decision on Cook's working status and added that there is no official business before the board this week. But the Fed's statement did not explicitly criticize Trump's decision to fire her.
If Trump succeeds in removing Cook from the Fed's board of governors, it would likely erode the Fed’s political independence, which enables it to take unpopular steps like raising interest rates.
A less-independent Fed could leave Americans paying higher 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 appointed two members of the board, Christopher Waller and Michelle Bowman, in his first term and 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.
"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 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.
"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 would remove Cook effective immediately because of allegations she committed mortgage fraud.
Cook fights back
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 allowed the Trump administration to remove commissioners at the National Labor Relations Board, the Merit System Protection Board and other independent agencies. 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."
