President Donald Trump announced the immediate dismissal of Federal Reserve Governor Lisa Cook on 25/8. He cited a "mortgage fraud" complaint filed with the Justice Department on 15/8 by Federal Housing Finance Agency (FHFA) Director Bill Pulte as the reason for his decision.

Cook is one of seven members of the Federal Reserve Board of Governors, which acts as the central bank of the United States and sets monetary policy. This independent agency plays a vital role in shaping and implementing national monetary policies to maintain US economic and financial stability.

This unprecedented dismissal of a Fed governor by a US president signals an escalation in the conflict between the two. Cook denies the allegations, asserting that Trump lacks the authority to fire her and plans to file a lawsuit. This will likely trigger a legal battle that could reach the Supreme Court.

The move suggests Trump is probing the Supreme Court's stance after its May ruling that paved the way for presidents to dismiss officials from independent agencies for "good cause." The ruling noted the Fed's "unique structure as a quasi-private entity" but offered no specifics.

Fed Governor Lisa Cook at a meeting in Washington on 25/6. Photo: AFP

Fed Governor Lisa Cook at a meeting in Washington on 25/6. Photo: AFP

Tensions between Trump and the Fed have been rising over interest rate policy. Trump wants lower rates to stimulate the economy, a move the Fed has resisted. He has repeatedly criticized and even threatened to fire Fed Chair Jerome Powell.

The 1913 Federal Reserve Act, which established the Fed, allows the president to remove governors for "good cause." The law doesn't define "good cause," but it is generally understood to include incompetence, neglect of duty, or malfeasance in office.

"Everyone agrees that if a governor takes a bribe, they can be removed. But what actually constitutes 'good cause'?" Robert Post, a Yale Law School professor, told the Wall Street Journal, calling the situation "extremely important."

Post noted that Cook has not been charged with any civil or criminal wrongdoing. If courts allow Trump to fire her based solely on an accusation, without requiring evidence of misconduct, the "good cause" protection becomes meaningless.

"The questions the court needs to address are what constitutes 'good cause,' who decides, and what process is required to remove a Fed governor," said Jennifer Nou, a law professor at the University of Chicago. "Trump has violated the rules by using an unsubstantiated pretext."

However, Politico considers Trump's move shrewd. Judges, including those on the Supreme Court, are often hesitant to overturn a president's subjective judgment on what qualifies as "good cause" or a legitimate basis for dismissal.

If the court doesn't intervene, Trump could appoint an ally to replace Cook on the seven-member Board of Governors. Governors are nominated by the president, confirmed by the Senate, and serve 14-year terms with no possibility of reappointment.

Cook is one of three governors appointed by former President Joe Biden. Of the remaining four, two were chosen by Trump. By ensuring more board members share his views on monetary policy, Trump could potentially achieve his interest rate goals.

Minutes from the Fed's late July meeting reveal that the two Trump-appointed governors favored lowering interest rates, while the other five, including Cook, believed rates should remain unchanged due to poor employment figures and rising inflation.

Trump's allies claim Cook's dismissal is a test run; his real target is Powell.

"It's a warning shot to Powell that 'we have good cause to deal with you too’," said Sean Spicer, former White House press secretary. "This is a test case, a way of saying 'we can do this, and this is the standard.’"

US President Donald Trump at the White House on 25/8. Photo: AFP

US President Donald Trump at the White House on 25/8. Photo: AFP

Harvard Law professor and former Justice Department official Jack Goldsmith believes that regardless of Trump's true motives, he's operating within the legal framework. If the courts choose not to intervene, any checks on his power must come from other sources.

"If the courts can’t restore norms, perhaps the markets will be forced to do their job," Nou said.

Cook believes Trump is seeking justification to do what he's always wanted: punish the Fed for not lowering interest rates.

"President Trump is trying to fire me for 'good cause' without any basis or authority," Cook stated. "I will not resign. I will continue my work supporting the US economy as I have since 2022."

Nhu Tam (CNN, Politico, WSJ)