Lisa Cook Suit Says Her Firing by Trump Puts US Economy at Risk

Federal Reserve Governor Lisa Cook’s lawsuit against President Donald Trump portrays his attempt to fire her as a power grab that could cause “irreparable harm” to the US economy.

The suit disputed Trump’s allegation of mortgage fraud and described it as mere pretext to justify firing her and trying to seize control of the Fed. The move is part of a pattern by Trump, Cook says, following his earlier attempt to force out Fed Chair Jerome Powell and pressure the central bank into lowering interest rates.

Cook asked US District Judge Jia Cobb in Washington to issue a temporary restraining order barring Trump’s firing of her from taking effect as the lawsuit begins. The order is necessary, according to the filing, to preserve the status quo at the Fed and protect the public interests.

“The short-term political interests of a president often clash with sound monetary policy,” Cook’s lawyer, Abbe Lowell, wrote in the filing. “A politically insulated Board of Governors can make appropriate, albeit unpopular, decisions — such as raising interest rates to combat inflation — that are crucial for the nation’s long-term financial health.”

Cobb, an appointee of former President Joe Biden, set an emergency hearing for Friday morning.

The lawsuit is a major escalation in the growing clash between the White House and the Fed, which has resisted Trump’s demands to lower interest rates.

Trump insists that he has “cause” to fire Cook and said the allegations against her were sufficient because she’d been previously accused of lying in financial documents.

“The President determined there was cause to remove a governor who was credibly accused of lying in financial documents from a highly sensitive position overseeing financial institutions,” White House spokesman Kush Desai said in a statement. “The removal of a governor for cause improves the Federal Reserve Board’s accountability and credibility for both the markets and American people.”

Cook’s lawsuit does not explicitly deny the mortgage fraud claim, but it does highlight a potential defense. The filing suggests that parts of the mortgage applications at issue could have been mislabeled unintentionally.

Regardless, Cook argues, the alleged conduct doesn’t amount to “cause” to fire her under the Federal Reserve Act because it hasn’t been proven and allegedly took place before her Senate confirmation and isn’t relevant to her job.

2038 Term

Cook’s complaint describes Trump’s move against her as “unprecedented and illegal,” arguing that her firing, if allowed to take place, “would be the first of its kind in the Board’s history” and “would jeopardize the independence of the Federal Reserve, and ultimately, the stability of our nation’s financial system.”

Cook’s filing follows through on her vow earlier this week to fight to finish her term that expires in 2038. She asked a judge to immediately issue an order blocking Trump’s effort to remove her and barring the Fed from taking any actions to carry out the president’s demands.

Representatives for Cook’s lawyers and the Fed declined to comment.

Read the Lawsuit: Cook v. Trump

Rulings in the case in the coming days and weeks could add to investors’ concerns that the president’s efforts will undermine the independence of the central bank — a bedrock assumption of US markets that underpins the nation’s credit ratings.

Cook said that the market’s negative reaction to Trump’s attempt to fire her is evidence that the public has a strong interest in Fed independence.

“Shortly after President Trump announced his purported firing of Governor Cook, the dollar weakened against major currencies,” according to her filing.

Explainer: What Happens Next in Trump Fight With the Fed’s Cook

Cook sued days after Trump wrote a letter to her, which he posted on social media, saying that he was removing her immediately in light of her “deceitful and potentially criminal conduct in a financial matter.”

Trump’s post followed a claim on social media by Federal Housing Finance Agency Director Bill Pulte that Cook lied on 2021 loan applications for two properties — in Michigan and Georgia — by claiming she would use each property as her primary residence to secure more favorable loan terms. He said the applications were filed two weeks apart.

The suit says Cook wasn’t given an opportunity to respond to the allegations before Pulte referred the matter for a criminal investigation. Cook hasn’t been charged with wrongdoing.

‘For Cause’

The case will likely hinge on whether a judge agrees that Trump has “cause” under US law to fire Cook. Section 10 of the Federal Reserve Act, the 1913 law that governs the central bank, says members of the Fed’s Board of Governors can be “removed for cause,” although the statute doesn’t specify exactly what “cause” means.

Laws that do describe “for cause” generally define the term as encompassing three possibilities: inefficiency; neglect of duty; and malfeasance, meaning wrongdoing, in office. It’s far from clear that the mortgage allegations against Cook are enough to meet that bar.

Read More: Fed’s Cook Hires Star Trial Lawyer Who Left Firm to Fight Trump

Cook became the first Black woman to serve on the Fed’s Board of Governors in Washington when she was appointed by President Joe Biden in 2022. During her initial confirmation process, Cook faced intense scrutiny from Republican lawmakers who accused her of misrepresenting parts of her resume and tried to use that to sink her nomination. She strongly denied the claims and was confirmed on a party-line vote in the Senate, with then-Vice President Kamala Harris stepping in to break the 50-50 tie.

Her departure would give Trump an opportunity to secure a four-person majority on the seven-member board after another Biden appointee, Adriana Kugler, announced Aug. 1 she would vacate her position early. Kugler’s term was set to expire in January. Two other governors, Christopher Waller and Michelle Bowman, were appointed during Trump’s first term.

(Retops story with new first paragraph and details about Friday hearing in paragraph four.)

--With assistance from Jennifer A. Dlouhy, Reade Pickert and Matthew Boesler.

To contact the reporters on this story:
Erik Larson in New York at elarson4@bloomberg.net;
David Voreacos in New York at dvoreacos@bloomberg.net;
Zoe Tillman in Washington at ztillman2@bloomberg.net

To contact the editors responsible for this story:
Misyrlena Egkolfopoulou at megkolfopoul@bloomberg.net

Anthony Aarons

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