Donald Trump fired Federal Reserve Governor Lisa Cook on Monday night, marking an unprecedented escalation in his battle to control the independent central bank. Trump announced the firing in a letter posted on his Truth Social platform, citing mortgage fraud allegations against Cook.
The allegations were made by Bill Pulte, a Trump appointee to the Federal Housing Administration, who claims Cook illegally claimed two properties as primary residences - one in Michigan and one in Georgia. According to the Guardian, Cook had previously stated she would not step down and had "no intention of being bullied".
Market reaction shows concern
Bloomberg reports that gold rose 0.6% and the dollar weakened immediately after the announcement, reflecting market concerns about Federal Reserve independence. The firing represents the first time a sitting Fed governor has been dismissed by a president over policy disagreements.
Cook became the first African American woman to serve on the Fed board when she was appointed in 2022. The Independent reports that a criminal referral dated August 15 was sent to Attorney General Pam Bondi regarding the mortgage allegations.
Broader strategy emerges
The Daily Mail reports that Scott Bessent will begin interviewing potential replacements for Fed Chair Jerome Powell in September, nine months before Powell's term expires. Trump has repeatedly attacked Powell for not cutting interest rates and has threatened to fire him.
Powell says the Fed wants to assess how the economy responds to Trump's sweeping import tariffs, which could push up inflation. This caution has infuriated Trump, who demands rate cuts to spur economic growth and reduce government borrowing costs.
Fed independence under threat
The firing threatens the Federal Reserve's venerated independence, which has long been supported by economists and Wall Street investors. An independent Fed can more easily take unpopular steps to fight inflation, such as raising interest rates that make borrowing more expensive.
The importance of Fed independence was cemented after the extended inflation spike of the 1970s and early 1980s. Arthur Burns, the former Fed chair, was widely blamed for allowing painful inflation to accelerate by succumbing to pressure from Richard Nixon to keep rates low before the 1972 election.
Paul Volcker, appointed Fed chair in 1979, pushed short-term rates to nearly 20% compared to today's 4.3%. The eye-popping rates triggered a sharp recession and pushed unemployment to nearly 11%, but by the mid-1980s inflation had fallen back into low single digits.
Supreme Court limitations
Any effort to fire Powell would likely cause stock prices to fall and bond yields to spike higher, pushing up borrowing costs for mortgages and credit cards. Most investors prefer an independent Fed because it typically manages inflation better without political influence and makes more predictable decisions.
The Supreme Court suggested earlier this year that a president cannot fire the Fed chair simply over policy disagreements. However, a president may be able to remove the chair "for cause", typically meaning wrongdoing or negligence - which may explain Trump's focus on building renovation allegations against Powell.
Sources used: "The Guardian", "Daily Mail", "BBC", "Independent", "Bloomberg" Note: This article has been edited with the help of Artificial Intelligence.
