Can Trump fire Cook?
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Can Trump fire Cook?
Cook refused to resign and pledged to sue, arguing that Trump lacks the legal authority to fire her.
Navigating Web3 tides with focused insightsBy: Bobo Yilong, TechFlow
President Trump's attempt to remove Federal Reserve Governor Lisa Cook is sparking a major legal dispute over the White House's authority to control the Fed.
On August 26, TechFlow reported that Trump announced on social media that he was removing Fed Governor Cook "effective immediately," accusing her of fraud in mortgage applications. Cook's defense attorney, Abbe Lowell, has pledged to file a lawsuit. In a statement, Cook said:
President Trump claims there is "cause" to fire me, but there is no such cause under the law, nor does he have the power to do so. I will not resign. I will continue to carry out my duties and help the American economy, just as I have done since 2022.
Cook was appointed by President Biden in 2022, with her term originally set to last until 2038. Bill Pulte, director of the Federal Housing Finance Agency, accused Cook of misconduct during her application for two home mortgages in 2021, potentially constituting mortgage fraud.
However, these remain mere allegations. Cook has not yet faced a formal investigation or criminal charges, let alone a conviction. The alleged misconduct occurred one year before her appointment to the Fed board and is unrelated to her duties as a governor. Legal experts say unproven allegations would struggle to meet the threshold for "for cause" removal.
Under Section 10 of the Federal Reserve Act of 1913, members of the Federal Reserve Board may only be removed "for cause," though the law does not clearly define what constitutes "cause." Generally, "cause" is understood to include three circumstances: inefficiency, neglect of duty, and misconduct while in office.
The outcome of the current dispute between Trump and Cook will largely depend on how courts interpret this legal standard of "for cause."
Legal Process: Preliminary Injunction Is Key
If Cook files a lawsuit, she can immediately apply for a preliminary injunction to block her removal while litigation proceeds.
Both sides will submit briefs outlining their arguments, and the Trump administration will have an opportunity to provide further details regarding the allegations against Cook.
The outcome of the injunction decision may hinge on whether Cook can convince a judge that she and the Federal Reserve would suffer "irreparable harm" if the status quo is not maintained.
A ruling on the preliminary injunction could come quickly, which is critical because a judicial determination on whether there is actual "cause" for removal could take months or longer.
The case may not drag on indefinitely. Either side may appeal the injunction ruling to a federal appeals court. If Cook's injunction request is denied and the appeals court upholds that decision, her removal will stand. If the injunction is granted and upheld on appeal, Cook can remain in office while the case moves forward.
Supreme Court May Be Final Arbiter
This dispute could ultimately be decided by the U.S. Supreme Court.
Any ruling on a preliminary injunction can be appealed to a federal appeals court and eventually reach the Supreme Court.
Given that Trump holds a 6-to-3 conservative majority on the Court, and that the Court has repeatedly allowed his legally challenged policies to take effect this year, this may place him in a favorable position in litigation.
However, the Supreme Court gave an important signal in a May ruling this year. While allowing Trump to remove officials from two other government agencies without cause, the Court specifically noted that this decision did not imply the president had similar authority over the Federal Reserve, calling the Fed "a uniquely structured private entity."
This statement has been interpreted as indicating that Trump cannot remove Fed officials without cause, but leaves open the possibility of removing Cook "for cause." Reports indicate that in U.S. legal practice, "cause" is typically interpreted to cover three situations: inefficiency, neglect of duty, and misconduct while in office.
Yet, there remains no uniform consensus on these terms, which originated over a century ago in congressional debates. Judges will have to determine whether the mortgage fraud allegations against Cook constitute any of these grounds.
If this case reaches the Supreme Court, it will be a direct test of this legal gray area.
Origins of the 'Mortgage Fraud' Allegations
Bill Pulte, director of the Federal Housing Finance Agency and a staunch ally of Trump, accused Cook on social media of lying on loan applications for two properties.
Earlier, TechFlow mentioned that Cook listed two properties—one in Michigan and one in Georgia—as primary residences to obtain more favorable loan terms. The applications were submitted two weeks apart.
In his letter, Trump stated it was "inconceivable" that Cook did not know that two separate mortgage applications filed in the same year required her to designate each property as her primary residence. Trump wrote:
At a minimum, the conduct involved demonstrates serious negligence in financial transactions, calling into question your experience and credibility as a financial regulator.
Media reports indicate the Trump administration has made similar allegations against other critics, including California Senator Adam Schiff and New York Attorney General Letitia James, both of whom have denied the claims.
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