In an unprecedented move, former US President Donald Trump announced the immediate firing of Federal Reserve Governor Lisa Cook, intensifying his efforts to exert influence over an institution long regarded as politically independent. Trump justified his decision in a letter shared on his Truth Social platform, citing allegations of mortgage fraud against Cook. The accusations originated from Bill Pulte, a Trump appointee associated with agencies regulating prominent mortgage firms Fannie Mae and Freddie Mac.
Pulte alleged that Cook improperly claimed two primary residences, allowing her to secure favourable mortgage terms, while borrowing rates generally increase for second homes. This action is likely to invoke a significant legal battle potentially escalating to the Supreme Court, which could have repercussions for financial markets, with risks of rising interest rates.
The Federal Reserve’s autonomy is crucial for its ability to manage inflation, as it enables the institution to undertake unpopular measures like raising interest rates. Should market investors begin to lack confidence in the Fed’s capability to control inflation, it could lead to increased borrowing costs for mortgages, business loans, and more.
Legal analysts suggest that these allegations may serve merely as a pretext for Trump to appoint a more compliant member to the Federal Reserve Board. Though Fed governors are presidential appointees, they serve staggered 14-year terms designed to protect them from political pressures—none have ever been dismissed by a president. Historically, recent presidents have respected the Fed’s independence, despite prior pressures from Richard Nixon and Lyndon Johnson.
Cook, who recently stated she would not resign despite earlier calls from Trump for her to do so, has not been charged with any crime. Senate Democrats have publicly expressed their support for her. Trump indicated that Cook’s alleged misconduct undermined public confidence in the integrity required for those guiding the Federal Reserve, arguing that his constitutional duty mandated her removal.
The fallout from Trump’s decision has drawn criticism from various quarters, with many fearing that his actions aim to consolidate power over financial regulators, potentially transforming them from independent entities into instruments of presidential favour. Critics, such as former Consumer Financial Protection Bureau director Rohit Chopra, warned of negative implications for American consumers facing rising prices.
Trump has a history of targeting Fed chair Jerome Powell, expressing frustration over interest rate decisions, and has previously hinted at a desire to replace him. If successful in appointing loyalists to the Federal Reserve, Trump plans to influence interest rates favourably, reinforcing his agenda to keep rates low. However, changes to the Fed’s governing structure may not guarantee significant shifts in policy, given the multi-member nature of the Fed’s interest-rate-setting committee.