Trump moves to fire Fed governor; Lisa Cook to file lawsuit, says 'he has not authority'

After calling for her resignation last week, Trump posted a letter to his Truth Social platform Monday evening, saying she was fired "effective immediately."

He cited allegations of false statements on her mortgage agreements, saying: "I have determined that there is sufficient cause to remove you from your position."

But Cook on Tuesday rejected Trump's unprecedented bid to remove her, saying he had no legal authority to do so.

"I will not resign," said Cook, the first Black woman to serve on the central bank's board, in a statement shared with AFP.

"President Trump purported to fire me 'for cause' when no cause exists under the law, and he has no authority to do so," she added.

Cook's attorney Abbe Lowell added: "We will be filing a lawsuit challenging this illegal action."

Among the alleged false statements was that Cook had claimed two primary residences, one in Michigan and another in Georgia.

Cook has not been charged with a crime and the alleged incidents occurred before she was in her current position.

Independence eroded?

The potential legal dispute would be the latest test of presidential powers under Trump's new term, with the 79-year-old Republican -- backed by loyalists throughout the government -- forcefully moving to exert executive authority.

But even as the Supreme Court's conservative majority recently allowed Trump to fire members of other independent government boards, it created a carveout for the Fed in its ruling.

Federal law says that Fed officials can only be removed for "cause," which could be interpreted to mean malfeasance or dereliction of duty.

Fed independence from the White House "is being eroded," said David Wessel, a senior fellow in economic studies at Brookings.

He told AFP that Trump appears to be trying to get a majority on the Fed's board, in an effort to lower interest rates and control the bank.

But Wessel warned: "History tells us that when politicians control the central bank, the inevitable consequence is higher inflation and financial instability."

The Fed's credibility as an inflation-fighter will be questioned, he said, cautioning that global investors will demand a premium on US Treasury debt as a result.

The Fed did not immediately respond to media queries.

Tipping the scales

Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee, called Trump's move "an authoritarian power grab that blatantly violates the Federal Reserve Act."

She added in a statement that this "must be overturned in court."

Since its last cut in December, the Fed has held interest rates at a range between 4.25 percent and 4.50 percent this year. Powell has opened the door, however, to lowering levels at the bank's next policy meeting in September.

Trump also previously suggested that what he called an overly costly renovation of the Fed's headquarters could be a reason to oust Powell, before backing off the threat.

Meanwhile the president has picked Stephen Miran, the leader of his White House economic panel, to fill a recently vacated seat on the Fed's board.

For now, Oxford Economics senior US economist Matthew Martin expects that even if Cook's removal could tip the scale in favor of lower interest rates, Fed decisions are still voted upon by 12 officials.

"It is also unlikely that the voting group would favor interest rates anywhere near where President Trump is suggesting," Martin told AFP.

Cook took office as a Fed governor in 2022 and was reappointed to the board in 2023. She previously served on the Council of Economic Advisers under former president Barack Obama.