Donald Trump vs Federal Reserve: How Will US Economy React to Lisa Cook’s Lawsuit?

Federal Reserve Governor Lisa Cook has sued United States President Donald Trump over his attempt to remove her from office, starting a legal battle over presidential powers and the independence of the central bank.

In her lawsuit, Cook argues that the removal violates federal law. The Federal Reserve Act of 1913 states that presidents can only remove a governor “for cause”, generally understood to mean serious misconduct or failure to perform official duties.

The Federal Reserve, which manages US monetary policy, is designed to operate independently from political influence by the White House or Congress. That independence is considered vital for maintaining stability in the economy. 

Experts Say Supreme Court Could Make the Final Decison in the Lawsuit by Lisa Cook Against Donald Trump 

Legal experts say Cook’s case is likely headed to the Supreme Court, where the conservative majority has in the past allowed presidents to remove officials from other federal agencies. However, the Court has recently signaled that the Federal Reserve may be different. In its May decision in Trump v. Wilcox, the justices noted that the Fed is a “uniquely structured, quasi-private entity” with roots in the First and Second Banks of the United States, suggesting it may qualify for a rare exception to presidential removal powers.

President Donald Trump has claimed he has the authority to remove Federal Reserve Governor Lisa Cook from her position, arguing he has “cause” to do so. In an August 25 letter, Trump accused Cook of mortgage fraud in 2021, a year before she joined the Federal Reserve’s Board of Governors.

The Federal Reserve Act of 1913 says a governor may only be removed “for cause.” However, the law does not clearly define what “cause” means or explain the process for removal. Trump argues that Cook’s actions amount to “gross negligence,” but Cook has firmly denied the allegations.

Lisa Cook is the First Black Woman to be Appointed as Board Member of Federal Reserve

No US president has ever removed a Federal Reserve board member, and the legal standards for doing so have never been tested in court. A spokesperson for the Fed said on Tuesday, before Cook’s case, that the institution would respect any court ruling.

Cook, who was appointed in 2022 by President Joe Biden, is the first Black woman to serve as a Federal Reserve governor. The questions about her mortgages were first raised in August by William Pulte, a Trump appointee and director of the Federal Housing Finance Agency. He referred the issue to Attorney General Pamela Bondi for investigation.

The mortgages in question were taken out in Michigan and Georgia in 2021, when Cook was still an economics professor. A 2024 disclosure form lists three mortgages, with two marked as primary residences. Mortgages for primary homes typically come with lower interest rates compared to investment property loans, which banks consider riskier.

Some legal experts question whether past financial dealings would be enough to justify removal.

Trump has previously accused other political opponents of mortgage fraud, including Senator Adam Schiff of California and New York Attorney General Letitia James. Both have denied wrongdoing, as has Cook.

Also Read: U.S. President Donald Trump Threatens Federal Reserve Governor With Termination: What Led to Fallout Between Two