US President Donald Trump fired Federal Reserve Governor Lisa Cook on Monday, marking an unprecedented escalation in his war with the central bank. The firing is the first time a president has removed a Fed governor in the institution's 111-year history.
Trump cited mortgage fraud allegations against Cook as the reason for her firing, even though she has not been charged with wrongdoing.
Central bank independence is under threat
The firing stemmed from allegations by Federal Housing Finance Agency Director Bill Pulte that Cook falsified mortgage documents. The Justice Department has said it will investigate the allegations. Cook had previously said she would not be “threatened” to resign over the social media allegations.
In his letter to Cook, Trump questioned her “integrity” and “credibility as a financial manager.” The president said Cook’s alleged conduct demonstrated “gross negligence in financial dealings.” Legal experts remain Chia on whether Trump can remove Fed governors without clear cause under the law.
The market reacted negatively to the announcement, with the dollar index falling 0.3% immediately after the news was released. Bond yields and S&P 500 Futures Contract also fell. The unprecedented move calls into question the independence of the central bank, a cornerstone of effective monetary policy.
Implications for monetary policy
Cook's ouster allows Trump to restructure the Fed's seven-member board. Another Biden appointee, Adriana Kugler, has announced plans to leave early, which could give Trump a four-person majority on the board.
The timing is important as the Fed prepares for its policy meeting on September 16-17, 2024. Chairman Jerome Powell recently signaled the possibility of a rate cut due to concerns about the labor market. Trump has repeatedly criticized the Fed for maintaining high interest rates.
Cook becomes the first black woman on the Fed's Board of Governors in 2022. Her term is set to run through 2038. It is unclear whether she will challenge the dismissal in court.
