Fed Governor Lisa Cook sues Trump over attempted dismissal

Lisa Cook, a governor on the Federal Reserve Board, sued President Donald Trump on Thursday over his decision to fire her from the nation’s central bank, arguing that she should be able to retain her position because the White House had no authority to order the dismissal.

Cook’s lawsuit, which was filed in the U.S. District Court for the District of Columbia, described her ouster as “unprecedented and illegal,” as she framed Trump’s actions as part of a overtly political campaign to pressure the independent Fed into lowering interest rates.

The lawsuit sets the stage for a landmark legal battle over the future of the Fed, an independent institution that Trump has savaged for months in a bid to install political loyalists who share his views on monetary policy.

Cook also listed the Fed’s Board of Governors and Jerome Powell, its chair, as defendants alongside Trump. That reflected their ability to take actions that carried out the president’s orders, the lawsuit said. In a statement earlier this week, the Fed said it would “abide by any court decision.” Until the court rules, Cook is still considered an active governor.

Cook officially embarked on her legal campaign three days after Trump announced he would fire her in a letter posted to social media. The president claimed that Cook, who was confirmed by the Senate in 2022, had engaged in mortgage fraud, as he invoked a power in the Fed’s founding statute that allowed him to dismiss governors for cause.

But Cook, the first Black woman to serve as a Fed governor, has not been charged or convicted of any crime. Many experts questioned the legality of Trump’s actions, pointing out that the allegations against Cook were unproven and involved conduct that predated her time at the Fed. Nor was Cook afforded an opportunity to review the evidence and respond to the claims formally, which struck many observers as legally problematic.

In a 24-page filing, lawyers for Cook said the firing would “subvert” the central bank’s congressionally mandated protections as laid out in the Federal Reserve Act. The filing also said Trump violated Cook’s right to due process, highlighting that she had no chance to respond to the allegations before the president announced her termination.

The lawsuit did not provide an explanation for why Cook listed two residences as her primary residence, which is the issue at the crux of a campaign against her.

“The unsubstantiated mortgage fraud allegations that allegedly occurred prior to Governor Cook’s Senate confirmation do not amount to ‘inefficiency, neglect of duty, or malfeasance in office,’” the lawsuit read, “nor has the president alleged that they do.”

The lawyers asked the district court to allow Cook to continue serving at the Fed on a temporary basis while she contested the legality of her firing. That could allow her to cast a vote on the direction of interest rates at the next Fed meeting to discuss borrowing costs in September.

“Cook asks the court to conclude the obvious: that it is illegal to remove a member of the Federal Reserve Board for something they ‘may’ have done prior to taking office,” said Lev Menand, a professor at Columbia Law School who studies the Fed. “It is also illegal to do so without providing her with notice and an opportunity to be heard. Trump’s guilty-until-proven-innocent approach is simply inconsistent with the law.”

Cook retained her own counsel in the lawsuit, and she is not represented by the Federal Reserve. The central bank in recent days has sought to emphasize its independence while offering no comment about the legality of Trump’s actions or the allegations levied against one of its own members, even though the case could carry stark ramifications for others on the Fed board, potentially leaving them vulnerable to dismissal by Trump.

The lawsuit also stressed the importance of a Fed that was insulated from the White House, saying that it was “essential for a stable economy, as the short-term political interests of a president often clash with sound monetary policy.” It warned that a Fed setting policy based on ways to make the government’s debt more manageable, as the president has urged, would lead to “economic collapse and hyperinflation.”

“Allowing the president to remove members of the board over policy disagreements would also render illusory the board’s independence,” the lawsuit added.

In the meantime, Trump has signaled he has started to explore potential replacements for Cook. His administration is also likely to appeal any ruling that allows Cook to remain in her job temporarily, priming the battle for the Supreme Court, where the justices in recent months have allowed the president to dismiss the leaders of some independent federal agencies at will.

While the justices have acknowledged there may be special protections afforded to the Fed, court observers say Cook’s case may nonetheless present a series of novel legal issues to resolve, including what constitutes a cause that would allow a president to fire a sitting governor.

The term is generally understood to mean professional neglect or malfeasance, though it is not clearly defined in the Fed statute. The lawsuit cited the Supreme Court’s recent characterization of the Fed as a “uniquely structured, quasi-private entity” as a signal that it was seen as distinct from the other independent agencies, whose top brass Trump has already removed.

“If President Trump’s attempt at firing her stands, then there is no exception for the Federal Reserve,” said Peter Conti-Brown, an expert on Fed governance at the University of Pennsylvania, warning that it would open the door for Trump to try to dismiss other policymakers with whom he disagrees.

A spokesperson for the White House, Kush Desai, defended the president’s decision to fire Cook. In a statement issued after she filed her lawsuit, Desai said Trump had established a “cause” for dismissal based on the fact she was “credibly accused of lying in financial documents from a highly sensitive position overseeing financial institutions.”

“The removal of a governor for cause improves the Federal Reserve Board’s accountability and credibility for both the markets and American people,” Desai added.

The Justice Department did not immediately respond to a request for comment. The Fed declined to comment.

Trump issued his order to fire Cook more than a week after the federal housing director, Bill Pulte, claimed he had unearthed evidence showing that the Fed governor had wrongly identified two homes as her primary residence on mortgage applications before she was appointed to the Fed. That, according to Pulte, allowed Cook to obtain favorable loan terms.

Pulte referred the matter to the Justice Department, which opened a criminal investigation, as he insisted his agency would continue to root out fraud. But his accusations fit a familiar pattern, one that has seen Pulte leverage the powers of his office – as the director of the Federal Housing Finance Agency – to investigate or attack Trump’s most recognizable political enemies.

In doing so, both Trump and Pulte have frequently expressed their disdain for the Fed and its approach to interest rates, which the central bank has left unchanged for months out of concern that the president’s policies could cause inflation. The two men have each attacked Powell while drumming up allegations that he committed fraud in overseeing a renovation of the central bank’s headquarters. At one point, Pulte privately encouraged Trump to fire Powell.

At a marathon Cabinet meeting Tuesday, Trump asserted that Cook had committed an “infraction,” explaining to reporters that “she can’t have an infraction, especially that infraction, because she’s in charge of, if you think about it, mortgages, and we need people that are 100% aboveboard.”

But Trump also appeared to rejoice at the prospect he might soon have a “majority very shortly” at the central bank. “Once we have a majority, housing is going to swing, and it’s going to be great,” he said. “People are paying too high an interest rate. That’s the only problem with housing.”

Another Fed governor, Adriana Kugler, abruptly announced she would step down from her post, even though her term did not end until January. In her place, Trump has said he plans to tap Stephen Miran, chair of the White House Council of Economic Advisers, though the president said this week that he could alternatively put Miran up for Cook’s seat. His nomination requires Senate approval.

This article originally appeared in The New York Times.