President Donald Trump escalated his ongoing fight against the Federal Reserve with an unprecedented move to fire Fed Governor Lisa Cook, putting the central bank’s independence at risk and setting up a struggle that will play out in courts and financial markets.
Futures for the S&P 500 dipped 0.14%, and the 10-year Treasury yield rose 2 basis points to $.295% as bonds sold off. The dollar fell 0.09% against the euro and 0.06% against the yen.
As investors grow concerned over the Fed making political rather than economic decisions, they will demand higher yields on bonds and further question the status of the dollar as the world’s top reserve currency.
Cook responded in a statement, saying “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 that she will not resign and “will continue to carry out my duties to help the American economy as I have been doing since 2022.”
Since returning to the White House, Trump has demanded that the Fed cut rates and routinely insults Chair Jerome Powell for not doing so. After Trump flirted with firing him, he later backed off, though he still made an issue of overruns at the Fed’s headquarters renovation..
Then last week, Trump threatened to fire Cook if she didn’t resign, after an administration housing official accused her of mortgage fraud. Cook said last week she wouldn’t be bullied into stepping down and vowed to rebut the accusations.
A dispute over a president’s ability to remove a Fed governor appears headed eventually for the Supreme Court.
Earlier this year, the high court said Fed officials have a special status that shields them from being sacked unless it’s “for cause,” which has previously been interpreted to mean malfeasance or dereliction of duty.
Meanwhile, Fed officials will likely circle the wagons as they seek to protect the central bank, which is not only a pillar of U.S. financial markets but for the world as well.
Powell’s term as chairman expires in May, but his term as a governor extends until 2028. While predecessors traditionally have stepped down from the board when their time as chair ended, Powell may feel obligated to stay on and protect the Fed’s independence now that Trump is seeking to oust Cook.
It’s not clear if Miran will be reappointed to the Fed board as the White House looks for someone to replace Powell as chairman. But either way, the Fed will have three Trump-appointed governors.
With Trump crossing into uncharted territory in his assault on the Fed, any effort to get a new Fed nominee confirmed by the Senate will now become an all-out battle.
“The illegal attempt to fire Lisa Cook is the latest example of a desperate President searching for a scapegoat to cover for his own failure to lower costs for Americans,” Sen. Elizabeth Warren, ranking Democrat on the Senate Banking, Housing, and Urban Affairs Committee, said in a statement on Monday night.
“It’s an authoritarian power grab that blatantly violates the Federal Reserve Act, and must be overturned in court.”
