Trump’s bid to fire Lisa Cook sparks legal battle and rattles confidence in Fed independence
US President Donald Trump’s unprecedented attempt to fire Federal Reserve Governor Lisa Cook has sparked concerns about central bank independence and potential impacts on financial markets, according to CTV News.
Trump announced Monday that Cook was being removed effective immediately after allegations she committed mortgage fraud, claims made last week by Bill Pulte, a Trump appointee to the regulator of Fannie Mae and Freddie Mac.
Cook has denied wrongdoing and has not been charged.
Legal scholars cited by CTV News suggested the allegations were likely a pretext to create an open seat for a loyalist who would support Trump’s push for lower interest rates.
No president has previously tried to dismiss a sitting Federal Reserve governor.
Senate Democrats voiced support for Cook, who has said she intends to fight her removal in court.
The case may reach the Supreme Court.
As reported by MSNBC, the majority of justices recently signalled in Trump v. Wilcox that the Federal Reserve’s structure merited protection from presidential removal powers, even as they expanded those powers over other agencies.
Justice Elena Kagan warned in her dissent that the ruling risked undermining the same precedent that secures the Fed’s independence.
Cook’s legal team has indicated they will argue Trump lacks sufficient cause to dismiss her.
According to Reuters, Trump’s threats against Cook and his continued pressure on Fed Chair Jerome Powell to cut interest rates represent the most serious challenge to the central bank’s independence in decades.
Central banks worldwide are monitoring developments, with concerns mounting that political influence could erode the credibility built since the 1980s, when Fed Chair Paul Volcker established independence as a pillar of inflation control.
Investors have already responded.
Reuters reported that yields on 10-year US government debt rose 2.5 basis points to 4.30 percent following Trump’s announcement, as bondholders demanded higher returns amid doubts over the Fed’s autonomy.
Economists noted that independence has been linked to greater stability in inflation and lower risk in commercial banking.
While Washington’s focus remains on Cook’s dismissal, Federal Reserve Bank of New York President John Williams addressed broader interest rate trends in a prepared speech in Mexico City.
According to Reuters, Williams said the era of low R-Star, the neutral rate of interest, is “far from over,” with long-term demographic and productivity trends continuing to keep it low.
He placed the growth-adjusted R-Star for the US, Euro area, UK and Canada at around 0.5 percent, similar to pre-pandemic levels.
Williams cautioned that policymakers should avoid overconfidence in precise estimates given the uncertainty in the underlying data.
The contrasting developments highlight the dual challenges facing the Federal Reserve — defending its independence under political pressure while navigating the long-term trajectory of interest rates.
