The Federal Reserve’s Board of Governors got a taste of The Apprentice treatment last week.
On August 25, President Trump removed Lisa Cook from her position as a Fed governor. Her ousting is widely viewed as an attack on the central bank’s independence. Nearly 600 economists have signed an open letter to express their “strong support” for “Lisa Cook and for the longstanding principle of central bank independence.”
It is easy to see why the president might want the Biden appointee gone. Trump has consistently called for the Fed to cut its federal funds rate target, thus far to no avail. Sacking Cook gives him another permanent seat to fill on the Federal Open Market Committee — and may persuade the remaining governors to get in line. In other words, firing Cook may enable Trump to remake the Fed in his own image.
But that’s not the reason the president offered. In a letter published to Truth Social, Trump indicated he was removing Cook “for cause” following a criminal referral from Federal Housing Finance Agency Director William Pulte. That is convenient, to say the least. The Federal Reserve Act permits the president to remove a governor for cause. It does not permit the president to remove a governor over policy disputes.
The Allegations
Let’s start with the allegations. According to Pulte, Cook made false statements on one or more mortgage documents. He cited two loans in the initial referral. As The Wall Street Journal reports, Cook took out a $203,000, 15-year mortgage in June 2021 on an Ann Arbor, Michigan home she had owned since 2005, indicating she would use the property as her primary residence for at least one year. Then, just weeks later, she took out a $540,000, 30-year mortgage to purchase an Atlanta, Georgia condo, again indicating she would use the property as her primary residence for at least one year. Pulte alleges Cook committed occupancy fraud by claiming she would use both properties as her primary residence for at least one year.
Falsely claiming a secondary residence as a primary residence will typically reduce the interest rate a borrower must pay, since borrowers are much less likely to default on a loan that would see them lose their primary residence.
How significant is the offense? It’s a federal felony. However, as Megan McArdle explains at the Washington Post, “individuals are rarely prosecuted” for occupancy fraud “because that would take a lot of time that the bank and prosecutors could more profitably spend doing something else.” Still, it is hard to justify “letting a public official get away with something the system can’t afford to publicly condone” once the offense has come to light. That the public official is a bank regulator makes it even more difficult to justify.
But that’s not all! In a second criminal referral, submitted on Friday, Pulte alleged Cook made false statements on a third loan as well. In April 2021, Cook took out a $361,000, 15-year mortgage on a Cambridge, Massachusetts condo she had purchased in 2002, indicating she would use the property as a second home for at least one year. According to Pulte, this property was not used as a second home, but as an investment property. “Documents she filed with the federal Office of Government Ethics show that Cook was already drawing rental income from the property by December 2021,” The Wall Street Journal reports.
The Court Battle
Cook sued President Trump, the Federal Reserve Board, and Fed Chair Jerome Powell on August 28, seeking “immediate declaratory and injunctive relief to confirm her status as a member of the Board of Governors, safeguard her and the Board’s congressionally mandated independence, and allow Governor Cook and the Federal Reserve to continue its critical work.” She is also seeking a temporary restraining order, which would permit her to remain in her position as governor until the case is settled, on the basis that she “is likely to succeed on the merits of her claims that President Trump’s purported firing violated her statutory and constitutional rights.”
In a hearing held on Friday, Cook’s attorney argued “the President has relied on a thinly-veiled pretext in an attempt to remove Governor Cook over her unwillingness to lower interest rates.”
The administration’s attorney responded to the pretext argument by reiterating that Cook was removed for cause and citing the decision in Trump v. Hawaii, which rejected a theory that would require “an inquiry into the President’s motives,” continuing,
Insofar as Dr. Cook seeks a ruling that the President’s stated rationale was pretext, the Court should decline ‘to probe the sincerity of the [president’s] stated justifications’ for an action when the President has identified a facially permissible basis for it. Not only does precedent foreclose that path as a matter of law, but Dr. Cook offers nothing but speculation to support her charge of insincerity. That is no basis to set aside a presidential action committed to the President’s discretion by law.
In other words, the president is free to reshape the Fed Board to achieve his policy goals — so long as he can show cause.
US District Judge Jia Cobb has yet to rule on the matter, but she is expected to rule before the Federal Open Market Committee meets in September.
Central Bank Independence
Democrats are understandably upset about Trump’s attempt to fire Cook. But their calls for central bank independence ring hollow. Time and time again, they have shown themselves willing to play politics with the Fed — when it suits their interests.
For starters, consider their relatively recent efforts to change the Fed’s mandate. In 2019, Rep. Alexandria Ocasio-Cortez (D-NY) and Sen. Ed Markey (D-MA) sponsored legislation for a Green New Deal, which would have seen the Fed adjust policy to help achieve climate goals. In 2023, Rep. Maxine Waters (D-CA) and Sen. Elizabeth Warren (D-MA) sponsored the Federal Reserve Racial and Economic Equity Act, which would have required “the Federal Reserve Board to carry out its duties in a manner that supports the elimination of racial and ethnic disparities in employment, income, wealth, and access to affordable credit.” Congress certainly has the right to modify the Federal Reserve Act. But it is hard to square these particular efforts with the current calls for central bank independence. Indeed, they look like efforts that would further politicize the Fed in order to advance so-called progressive political causes.
Democrats have also pushed out a Fed governor over purported ethics violations. Richard Clarida resigned in January 2022, amid claims that he had profited from insider information about forthcoming Fed policy in the early days of the pandemic. As the New York Times reported, he had moved somewhere between $1 million and $5 million from a broad-based bond fund to broad-based stock funds on Feb. 27, 2020. The trade, which the Fed described as a preplanned portfolio rebalancing that was similar to a trade he had made the prior year, complied with the central bank’s financial ethics rules. And, given the timing, it is a trade that probably cost him dearly: the S&P 500 declined 11.7 percent over the month that followed, while domestic bonds declined just 1.5 percent. Still, Sen. Warren requested Securities and Exchange Commission Chair Gary Gensler open an investigation in October 2021 and was still going on about the supposed “trading scandal” as late as August 2025. The real scandal — for genuine advocates of central bank independence — is that Democrats misconstrued a standard portfolio rebalancing to get rid of a Trump appointee.
Finally, consider how Cook’s appointment came about. In February 2018, Janet Yellen resigned, creating a vacancy on the Fed Board. Then-President Trump nominated Judy Shelton for the position in July 2019. However, her nomination stalled in the Senate. When Shelton finally came up for a vote in November 2020, not a single Democrat voted to confirm her. This left the vacancy for Biden to fill. He nominated Cook, the Senate split along party lines, and Vice President Kamala Harris broke the tie in favor of Cook’s appointment.
Of course, Senators have the right to oppose a president’s nominee. But it is difficult to argue they were not playing politics when they refused to confirm Shelton. Unlike Cook, who to the best of my knowledge had never written or spoken publicly about monetary policy prior to being considered for the Board seat, Shelton had written and spoken extensively on the subject. She was certainly qualified for the position, as judged by Cook’s later appointment. But Senate Democrats refused to confirm Shelton to get a Fed Governor with policy views closer to their own. It was a lawful decision, to be sure. But it was also a political decision.
Now, Trump is making what appears to be a lawful decision to fire Cook — for cause — in order to appoint a Fed Governor with policy views closer to his own.
Democrats do not like it. But they would almost certainly do the same if given the chance.
