The latest Beltway power play over money raised its stakes – again.
The Federal Reserve’s Board of Governors was designed by Congress to be independent from short-term political pressures.
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The current White House has its own deal on this.
President Donald Trump said Aug. 22 that he will fire Federal Reserve governor Lisa Cook if she doesn’t resign over unsubstantiated allegations of mortgage fraud.
Can he do this legally?
Image source: Drew Angerer/Getty Images
The Fed is designed to be independent of politics
The seven members of the Board of Governors are appointed by the president and confirmed by the Senate to 14-year staggered terms.
This long tenure is meant to insulate governors from the political cycle.
Under the Federal Reserve Act, governors “may be removed by the President for cause.”
- That means a president cannot dismiss a governor simply over policy disagreements or political pressure.
- Instead, there must be legally established grounds, such as misconduct, neglect of duty, or inability to perform official responsibilities.
President Trump’s latest threat against Cook
“What she did was bad. So I’ll fire her if she doesn’t resign,” the president told reporters Aug. 22.
Legal scholars have pushed back on Trump’s threat, noting that unless wrongdoing is proven, Cook cannot be lawfully removed.
The law requires cause, not political motivation.
And there’s the rub.
Firing a Fed governor would be a historic first
No sitting Federal Reserve governor has ever been removed by a president.
Even during moments of intense conflict, such as when President Lyndon B. Johnson clashed with Fed Chair William McChesney Martin, or when President Richard Nixon pressured Fed Chair Arthur Burns.
That precedent underscores how rare and controversial President Trump’s threat is.
Legal analysts say that forcing out a governor without clear evidence of misconduct could spark a constitutional showdown and market turmoil.
The independence of the Federal Reserve is at stake
The independence of the Federal Reserve is considered vital to its credibility with investors and the public across the globe.
Allowing governors to serve fixed terms regardless of political shifts helps ensure monetary policy decisions such as raising or cutting interest rates are based on economic data rather than electoral politics.
The president’s latest remarks put that independence in the spotlight just as Fed Chair Jerome Powell was about to address the Jackson Hole Economic Symposium.
White House wants a Fed that will lower interest rates
President Trump has been demanding the central bank lower benchmark interest rates immediately by a whopping 3%.
The Federal Open Market Committee last month voted to hold the benchmark interest rate at 4.25% to 4.50%.
Related: DOJ turns up the heat to remove embattled Fed official
Federal Housing Finance Agency Director William Pulte is a Trump loyalist who has joined the president in repeatedly criticizing Powell for not lowering interest rates.
Pulte sent a letter dated Aug. 15 to Attorney General Pam Bondi alleging Cook committed mortgage fraud in 2021 by obtaining mortgages in Michigan and Georgia and then claiming both as her primary residences.
A DOJ attorney sent Powell a threatening letter on Aug. 21, saying the department would act on Pulte’s charges.
Cook’s only comment to date has been that she would not “be bullied” into leaving her post.
She was reported to be in attendance at the Jackson Hole event.
What’s mortgage fraud, and why is it a federal crime?
Mortgage fraud is a federal offense that involves making false or misleading statements to obtain a home loan under better terms than would otherwise be possible.
The FBI classifies it as a type of financial institution fraud, and prosecutions are handled by the Department of Justice.
Common forms of mortgage fraud include:
- Occupancy fraud: Claiming a property will be a primary residence to secure a lower rate when it is actually a second home or rental.
- Income fraud: Inflating or fabricating income on a loan application.
- Appraisal fraud: Manipulating property valuations to qualify for larger loans.
Experts note that lying on a mortgage application is not a harmless shortcut. It is considered a material misrepresentation.
Fed board makeup could tip in favor of Trump appointees
Another Fed governor resignation would create a third opening for Trump to fill on the Fed board in the next year, potentially tipping the balance of Republican appointees to four of its seven members.
No charges have been filed against Cook, a Biden appointee who joined the Fed in 2022 and whose term ends in 2038.
More Federal Reserve:
- What the star-studded Jackson Hole Fed meeting means to you
- Producer price inflation shocks Fed interest rate cut bets
- White House taps more potential candidates to head the Fed
- White House expands search to replace Fed Chair Powell
- Trump makes surprise decision on Federal Reserve
DOJ attorney Ed Martin said in an Aug. 21 letter to Powell that it will investigate Pulte’s allegations.
Cook, a macroeconomist, is the first Black woman to serve on the Fed board.
Massachusetts Sen. Elizabeth Warren, the ranking member on the Senate Banking Committee, said on X (the former Twitter) that President Trump’s actions were “unlawful and politically motivated.”
The DOJ, the Fed, and Pulte’s office declined to comment.
Related: Powell drops hints about Fed interest rate cuts; stocks surge
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