The Controversy Surrounding Trump’s Firing of Federal Reserve Governor Lisa Cook

By: TPS Staff

Lisa Cook was nominated by Joe Biden for the Federal Reserve Board of Governors in 2022 and was appointed in a tie-breaking vote by then Vice President Kamala Harris. Cook has an impressive career in both economics and social sciences, blending her work with real world realities. One of her notable studies, Violence and Economic Activity, explores how acts of racial violence can reduce economic output, particularly affecting innovations such as patents.

Cook has faced allegations related to mortgage fraud during the Trump administration. The accusations focus on claims she made on mortgage applications in 2021, where she reportedly listed properties in Michigan and Georgia as her primary residences, despite regulations allowing only one primary residence for tax and mortgage purposes. Bill Pulte, head of the Federal Housing Finance Agency, brought these concerns forward. The Department of Justice (DOJ) has opened an investigation, although no charges have been publicly announced.

The Federal Reserve is established as an independent entity, designed to operate free from political influence. The Federal Reserve Act provides long terms for governors and restricts their removal to cases of “cause.” However, “cause” is a broadly defined term, generally understood to mean malfeasance or gross misconduct related to the governor’s duties. Whether the current allegations meet the legal standard for removal is a question to be decided in court.

Following the dismissal actions, Cook filed a lawsuit challenging the removal attempt. She argued that the Federal Reserve’s independence protects governors from political interference, including dismissals based on unproven allegations. Cook sought an injunction from a U.S. District Court to prevent her removal, asserting the allegations did not satisfy the legal requirements for dismissal. Her lawsuit also claims that she was not given proper due process, lacking the opportunity to review evidence or respond to the charges before the dismissal decision. The Federal Reserve and Chairman Jerome H. Powell were named as defendants in the case.

This case raises important questions about the meaning of “cause” for removal of Federal Reserve governors and whether criminal charges or convictions are necessary. It also marks the first known attempt by a president to remove a sitting Federal Reserve governor, setting a potentially significant precedent. Additionally, former President Trump has appointed Stephen Miran to fill the vacancy from Adriana Kugler, raising the possibility that the Federal Reserve Board could see a majority aligned with the administration’s perspective, which some observers view as a shift in the institution’s traditionally independent stance. Historically, presidents from both parties have appointed Federal Reserve governors as part of the normal political process, but removals have been extremely rare, underscoring the board’s intended independence from short-term political shifts.