Donald Trump has said he is firing Lisa Cook, a Federal Reserve governor, in a move viewed as a sharp escalation in his battle to exert greater control over the institution.
Who is Lisa Cook? Cook was appointed to the board of the Federal Reserve, the US central bank, in 2022, and reappointed by Joe Biden in 2023, for a 14-year term.
An academic economist with a doctorate from University of California, Berkeley, she served on Barack Obama’s council of economic advisers.
Why does Trump want Cook to go? The president has been pressurising the central back to cut interest rates, to support the US economy and make it cheaper for the government to finance its debts.
Cook backed the Fed’s recent decision to leave rates on hold, fearing the impact on inflation of Trump’s tariff policies.
Despite the Fed’s nominal independence from the US government, Trump has also criticised its governor, Jay Powell, repeatedly, calling him, among many other things, “too late, too stupid and too political”.
The president appears keen not just for Powell to go, but to shake up the entire Fed board so that it more closely reflects his own worldview.
Powell is due to step down as chair next May, though his tenure on the Fed board does not end until 2028. Trump recently selected his adviser, Stephen Miran, to fill a seat on the board that had become vacant after the departure of Adriana Kugler.
What is Trump’s explanation for firing Cook – and will she step down? In a post on Truth Social, Trump accused Cook of committing fraud in applying for mortgages, by wrongly designating two separate properties as her primary residence.
The allegation was originally made last week by Bill Pulte, a Trump appointee to the Federal Housing Finance Agency, an agency that regulates the mortgage organisations Fannie Mae and Freddie Mac.
“The American people must be able to have full confidence in the honesty of the members entrusted with setting policy and overseeing the Federal Reserve,” Trump wrote. “In light of your deceitful and possibly criminal conduct in a financial matter, they cannot and I do not have such confidence in your integrity.”
Cook appears to be prepared to resist Trump’s attempt to force her out. In a statement released on Monday, she said: “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so. I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022.”
A supreme court ruling in May found that it was lawful for the White House to remove a member of the National Labor Relations Board without cause – but made clear the same would not apply to the Fed, since it is a “uniquely structured, quasi-private entity”.
Since then, the Trump administration has been fishing for a “cause” to remove Powell, including questioning his handling of a $2.5bn renovation of the Fed’s headquarters.
Will Trump get his way on interest rates? It looks like it: Powell gave a significant speech last week at the annual central bankers’ retreat in Jackson Hole, Wyoming, which financial markets read as a signal that rates are on their way down.
He suggested that weakness in the jobs market was likely to outweigh the potential upward pressure on prices from Trump’s trade war, warning that “the shifting balance of risks may warrant adjusting our policy stance”.
Does it matter if the Fed’s independence is undermined? The market’s reaction to this latest aggressive move from the White House has been relatively muted, with investors perhaps more focused on anticipating a September rate cut.
But over time, many economists believe independence adds to the credibility of the central bank’s battle against inflation, which can sometimes mean raising interest rates – pushing up borrowing costs for consumers – at politically difficult moments.
Powell’s predecessor William McChesney Martin called this aspect of central banks’ role “to take away the punch bowl just as the party gets going”.
The importance of an independent Fed was cemented for most economists after the extended inflation spike of the 1970s and early 80s. Arthur Burns, the former Fed chair, has been widely blamed for allowing the painful inflation of that era to accelerate by succumbing to pressure from Richard Nixon to keep rates low heading into the 1972 election. Nixon feared higher rates would cost him the election, which he won in a landslide.
In the UK, when Labour won power in 1997, Tony Blair and Gordon Brown announced that they would make the Bank of England independent, in the hope of increasing the credibility of the government’s economic policies.
Could the Fed furore have effects outside the US? It could, if markets ultimately begin to lose confidence in the Fed’s ability to tackle inflation, driving up the yield on Treasury bonds – a key interest rate, against which many assets around the world are benchmarked.
Treasury yields did rise on Tuesday. But for the time being, markets appear willing to overlook Trump’s power grab, and focus on the prospect of an imminent rate cut.