Is Trump Firing Fed Governor Lisa Cook Legal? What To Know

Topline

Federal Reserve Governor Lisa Cook intends to sue President Donald Trump over his decision to fire her, her lawyer said Tuesday, teeing up a contentious court battle over whether Trump has the authority to terminate her—and it remains unclear how it will be resolved, though experts suggest the president is likely in the wrong.

Lisa Cook testifies during a Senate Banking nominations hearing on June 21, 2023 in Washington, DC.

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Key Facts

Cook’s attorney Abbe Lowell said Tuesday the Fed governor “will be filing a lawsuit challenging this illegal action,” claiming Trump’s decision to fire Cook “lacks any factual or legal basis.”

Trump released a letter Monday night announcing he was firing Cook, citing allegations that she made false statements on her mortgage agreements and saying that “calls into question [her] competence and trustworthiness as a federal regulator.”

Cook has pushed back against her firing, saying in a statement Monday night she will not resign and arguing Trump “purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so.”

The Federal Reserve Act allows presidents to appoint governors to the Federal Reserve board, and also gives them limited authority to fire them, saying the president can only terminate a board member “for cause”—which typically refers to gross misconduct.

While Trump cited the mortgage allegations as a reason to fire Cook, legal experts have questioned whether that actually constitutes “just cause” under the law, as any allegations would typically have to be investigated first, and the governor being probed would have an opportunity to present evidence in their defense.

Columbia University law professor Lev Menand also told the Associated Press that “just cause” typically refers to misconduct that happens while on the job, and Cook “is not someone who is not carrying out their duties.”

What To Watch For

It’s unclear when Cook’s lawsuit against Trump will formally be filed, or how long any legal battle will take to play out. It’s also still murky what will happen in the meantime, given Cook’s refusal to resign, and the Federal Reserve has so far not commented on whether Cook was working Tuesday following Trump’s letter.

Who Is Lisa Cook?

Cook is serving a term on the Federal Reserve board that’s scheduled to expire in 2038. Appointed to the board by former President Joe Biden, Cook is the first Black woman to serve as a governor on the board. Prior to joining the Fed, Cook taught at Michigan State University and Harvard University, and she served in the Obama administration as a senior economist on the Council of Economic Advisers. She also served as a director of the American Economic Association Summer Training Program, as a research associate for the National Bureau of Economic Research and as a senior adviser on finance and development in the Treasury Department’s Office of International Affairs.

What Is A Federal Reserve Governor, And Why Does Trump Firing Lisa Cook Matter?

The Federal Reserve is the central bank of the U.S. and makes decisions about the nation’s monetary policy, including whether to raise or lower interest rates. The Fed is governed by a seven-person board, with members being nominated by the president for 14-year terms. Having an independent Federal Reserve that’s free from political influence has long been considered to be of great importance to the U.S.’ economy, but Trump has thrown that independence into doubt in recent months, as he’s repeatedly threatened to fire Fed Chair Jerome Powell for refusing to lower interest rates. Trump’s decision to fire Cook marks the first time a president has tried to fire a Fed governor, according to the AP, and her leaving the board would pave the way for Trump to have appointed a majority of the board, allowing him to better influence the Fed’s decision-making.

What Does The Federal Reserve Act Say?

The Federal Reserve Act says only that members of the Federal Reserve’s Board of Governors “shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President.”

Is Trump Firing Lisa Cook ‘for Cause’?

Being fired “for cause” or with “just cause” is a phrase commonly used in employment law, which refers to an employer having a good reason to fire the employee, typically for some kind of gross misconduct. The alternative is “at-will” employment, in which employers are able to terminate workers without needing any justification. The Federal Reserve Act doesn’t define “for cause” at all, making it a legal gray area whether Trump actually has cause under the law to fire Cook. But legal experts have so far been doubtful. “It’s not cause if someone made an allegation that’s untrue,” Scott Alvarez, former general counsel for the Federal Reserve, told CNBC. “To be for cause she has to have an opportunity to explain her side of the story.” Peter Conti-Brown, who specializes at the University of Pennsylvania in the Fed’s history, also argued to Reuters any “past conduct” in a political appointee’s personal life, like the mortgage allegations, would come under the scope of what the president and Congress are supposed to vet when nominees are appointed and confirmed, rather than something they can be punished for later while they’re on the job. “The idea that you can then reach back … and say, you know, ‘All these things that have happened before now constitute fireable offenses from your official position,’ is, to me, incongruous with the entire concept of for cause removal,” Conti-Brown told Reuters.

How Could The Supreme Court Rule?

The dispute over Cook’s firing could ultimately be determined by the Supreme Court. Prior to Trump’s second administration, the Supreme Court historically restricted presidents’ ability to fire members of independent boards—like the Federal Trade Commission or National Labor Relations Board—without good reason. A 1935 ruling by the court established the precedent that presidents can only fire such officials for “inefficiency, neglect of duty, or malfeasance in office.” The 6-3 conservative court has been more willing to let Trump get rid of appointees who would typically have more independence, however, ruling 6-3 in May to let Trump fire a member of the National Labor Relations Board and a member of the Merit Systems Protection Board. Justices suggested they would not be so willing to greenlight any terminations on the Federal Reserve board, however, disagreeing with the officials’ arguments that letting Trump fire them would also pave the way for him to make cuts at the Fed. The Federal Reserve is “a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States,” the court’s conservative majority wrote.

What Are The Mortgage Fraud Allegations Against Lisa Cook?

Trump’s letter to Cook on Monday cited allegations that she listed two different properties, in Michigan and Georgia, as being her “primary” residence on mortgage documents. The disclosures took place in 2021, according to Bill Pulte, the director of the Federal Housing Finance Agency, which is prior to Cook’s nomination to the Fed board in 2022. Naming a property as being a “primary” residence can result in getting a lower interest rate for a mortgage than if a property is a vacation home or investment property, The New York Times notes. Pulte publicly accused Cook of falsifying mortgage documents in a letter last week, which also claimed he was referring the matter to the Justice Department for a criminal inquiry. Cook has so far not been charged with any crimes, however, and experts cited by the Times noted the evidence that Pulte’s released so far is not enough to determine whether Cook actually did anything wrong. “There’s nothing in what they have provided here that would form the basis of a fraud charge,” Suffolk University Law School professor Kathleen Engel told the Times, noting fraud charges have “a lot of elements,” including requiring prosecutors to show the defendant had an “intent” to commit fraud. Cook has so far not commented substantially on the allegations against her, saying only that she takes “any questions about my financial history seriously as a member of the Federal Reserve, and so I am gathering the accurate information to answer any legitimate questions and provide the facts.”