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Federal Reserve Chair Jerome Powell (right) speaks with Fed Governor Lisa Cook at Fed headquarters in Washington, D.C., on June 25. / Source: AP-Fed

U.S. President Donald Trump’s attempt to remove Federal Reserve Governor Lisa Cook, accused of mortgage fraud, has ignited controversy over whether the president has the authority to fire Fed officials and what such a move could mean for the independence of the central bank and the stability of the global economy.

Trump challenges Fed’s autonomy

At a Cabinet meeting on August 26, Trump claimed Cook had engaged in “deceptive and potentially criminal” conduct related to a 2021 mortgage and said he had “several good people” in mind to replace her, though he added he would abide by court rulings. The day before, Trump had announced on Truth Social that, under Article II of the Constitution and the 1913 Federal Reserve Act, he was immediately dismissing Cook — the first Black woman appointed to the Fed board by then-President Joe Biden.

Cook has denied wrongdoing, vowed to serve her full 14-year term until 2038, and said the president lacks authority to remove her. Her attorney called Trump’s action “legally baseless” and promised to challenge it in court. The Fed itself issued a statement affirming that governors serve fixed terms to ensure policy decisions are made in the long-term interest of the U.S. economy.

The Financial Times reported the case is likely to move swiftly through the courts and could ultimately be decided by the Supreme Court.

Legal gray zone: “for cause” removal

While the Federal Reserve Act allows removal of governors “for cause,” no U.S. president has ever tried to fire a Fed governor or chair. In May, the Supreme Court reaffirmed protections for Fed officials when it ruled Trump could not dismiss Chair Jerome Powell or other governors without proper cause.

Columbia University law professor Lev Menand told the Wall Street Journal that the U.S. is in “uncharted waters,” as no president has invoked misconduct allegations to justify firing a Fed official. He noted that “cause” could mean criminal conviction or indictment, but Cook has not been formally charged.

Political pressure ahead of FOMC meeting

Trump’s move comes just weeks before the Federal Open Market Committee (FOMC) meets on September 16–17, fueling speculation he is trying to force rate cuts. Former Fed Chair and Treasury Secretary Janet Yellen told The New York Times the attempt amounts to “a full-scale attack on the Fed” and a bid to control its decision-making.

The FOMC comprises seven governors appointed by the president and five rotating regional Fed bank presidents. Economists warn that undermining their independence could chill debate and politicize monetary policy.

Risks for U.S. and global economy

Reuters said the episode puts the Fed’s independence to a real test, questioning whether its credibility rests on law or on long-standing norms. The Fed has long used tools such as dollar swap lines with other central banks during crises to calm markets free of political interference.

UC Berkeley economist Emi Nakamura stressed that the Fed’s success in anchoring inflation expectations at 2% despite surges in actual inflation reflects its reputation for independence. “It takes decades to build such credibility, but it can be destroyed very quickly,” she said.

The New York Times warned that if Trump succeeds in forcing rate cuts, investors and consumers could lose trust that policy is evidence-based rather than political, leading to sharper short-term inflation and greater long-term difficulty in managing the economy.