US Fed governor Lisa Cook sues Trump over attempt to fire her

Federal Reserve member Lisa Cook has resisted pressure from US president Donald Trump to resign. Picture: AP Photo/Manuel Balce Ceneta 

US Federal Reserve governor Lisa Cook sued President Donald Trump over his attempt to fire her for alleged mortgage fraud, kicking off a historic fight over independence of the US central bank.

Mr Trump’s claim that Ms Cook may have lied on mortgage applications to get better loan terms on a pair of homes is not sufficient “cause” to fire her because the alleged conduct is unproven and took place before her Senate confirmation, Cook said in a lawsuit Thursday.

“This case challenges President Trump’s unprecedented and illegal attempt to remove Governor Cook from her position which, if allowed to occur, would the first of its kind in the Board’s history,” her lawyer, Abbe Lowell, wrote in the suit in Washington federal court.

The lawsuit is a major escalation of the growing clash between the White House and the Fed, which has resisted Mr Trump’s demands to lower interest rates even as he has repeatedly attacked Fed chair Jerome Powell. The Fed chair has also resisted the president’s demands to resign. In her suit, Ms Cook suggested the attempts to remove both her and Ms Powell are part of an effort to seize control of the Fed.

Ms Cook’s filing follows through her vow earlier this week to fight to finish her term that expires in 2038. She asked a judge to immediately issue an order blocking Mr Trump’s effort to remove her and barring the Fed from taking any actions to carry out the president’s demand.

Ms Cook requested an emergency hearing on her motion for a temporary order. The case was assigned to US District Judge Jia Cobb, who was appointed by former US president Joe Biden.

“The mortgage allegations against her are pretextual, in order to effectuate her prompt removal and vacate a seat for President Trump to fill and forward his agenda to undermine the independence of the Federal Reserve,” according to the complaint.

After the lawsuit was filed, the White House said that Trump was acting lawfully. “The president determined there was cause to remove a governor who was credibly accused of lying in financial documents from a highly sensitive position overseeing financial institutions,” White House spokesman Kush Desai said in a statement. “The removal of a governor for cause improves the Federal Reserve Board’s accountability and credibility for both the markets and American people.” 

Representatives for Ms Cook’s lawyers and the Fed declined to comment.

In the complaint, Ms Cook says that a policy dispute doesn’t constitute “cause” for removal, nor does “a specious assertion that a one ‘potentially’ committed a crime — one which is unproven, uncharged, and unrelated to official conduct.” Mr Trump’s claims that there is a reason for removing Ms Cook “does not magically make such a basis grounds for a ‘for cause’ removal,” according to the suit.

Rulings in the case in the coming days and weeks could add to investors’ concerns that the president’s efforts will undermine the independence of the central bank — a bedrock assumption of US markets that underpins the nation’s credit ratings.

Ms Cook sued days after Mr Trump wrote a letter to her, which he posted on social media, saying that he was removing her immediately in light of her “deceitful and potentially criminal conduct in a financial matter”. Mr Trump’s post followed a claim on social media by US Federal Housing Finance Agency director Bill Pulte that Cook lied on 2021 loan applications for two properties — in Michigan and Georgia — by claiming she would use each property as her primary residence to secure more favourable loan terms. He said the applications were filed two weeks apart.

The suit says the alleged mortgage fraud occurred before Ms Cook’s Senate confirmation and that she wasn’t given an opportunity to respond to the allegations before Mr Pulte referred the matter for a criminal investigation. Ms Cook hasn’t been charged with wrongdoing.

The case will likely hinge on whether a judge agrees that Mr Trump has “cause” under US law to fire Ms Cook. Section 10 of the US Federal Reserve Act, the 1913 law that governs the central bank, says members of the Fed’s Board of Governors can be “removed for cause,” although the statute doesn’t specify exactly what “cause” means.

Laws that do describe “for cause” generally define the term as encompassing three possibilities: inefficiency; neglect of duty; and malfeasance, meaning wrongdoing, in office. It’s far from clear that the mortgage allegations against Ms Cook are enough to meet that bar.

In seeking a temporary restraining order, Ms Cook’s lawyers outlined a potential defence to the fraud allegations relating to mortgages she took in 2021. Both mortgages say that each would be her “principal” residence.

The potential that she “mislabeled a home’s purpose on a mortgage application well before her board appointment without any allegation of its intentionality or materiality would not be the type of ‘offense’ that would constitute ‘cause,”’ her lawyers wrote.

Mr Trump’s move against Cook is the latest in a series of efforts by his administration to increase legal scrutiny of Democratic Party figures, in addition to pressuring the central bank. Similar mortgage fraud claims have been made against California Senator Adam Schiff and New York Attorney General Letitia James, two high-profile critics of the president.

Ms Cook became the first black woman to serve on the Fed’s Board of Governors in Washington when she was appointed by President Joe Biden in 2022. During her initial confirmation process, she faced intense scrutiny from Republican lawmakers who accused her of misrepresenting parts of her resume and tried to use that to sink her nomination. She strongly denied the claims and was confirmed on a party-line vote in the Senate, with then-vice president Kamala Harris stepping in to break the 50-50 tie.

Ms Cook has expressed worry over inflation and tariffs this year, but also said in early August that the July jobs report was “concerning” and could indicate a potential turning point for the US economy. Her departure would give Mr Trump an opportunity to secure a four-person majority on the seven-member board after another Biden appointee, Adriana Kugler, announced on August 1 that she would vacate her position early. Ms Kugler’s term was set to expire in January. Two other governors, Christopher Waller and Michelle Bowman, were appointed during Trump’s first term.

Bloomberg