Court rules Lisa Cook can remain a Fed governor for now while fighting Trump’s attempt to fire her
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WASHINGTON (AP) — A federal court ruled on Tuesday that Federal Reserve Governor Lisa Cook can retain her position as she challenges President Donald Trump’s attempts to dismiss her.

This ruling, likely to be appealed, marks a setback for the Trump administration’s bid to exert greater influence over the traditionally independent Fed. The Fed is responsible for setting short-term interest rates to fulfill its congressional mandates of stable prices and maximum employment, while Congress aims to shield the Fed from everyday political pressures.

U.S. District Judge Jia Cobb granted Cook’s request for a preliminary injunction to block her removal while the legal dispute is resolved. Cobb determined that Cook is likely to prevail in the lawsuit she filed at the end of last month contesting her dismissal.

Trump stated he intended to fire Cook on August 25 due to allegations from one of his appointees suggesting she committed mortgage fraud related to two properties she acquired in 2021, prior to her tenure at the Fed. The accusation is that Cook misrepresented the homes as “primary residences,” potentially leading to lower down payment and mortgage rates compared to classification as secondary homes or investment properties.

Cobb determined the allegations were likely insufficient to justify her removal. According to the law regulating the Fed, governors can only be removed “for cause,” which Cobb clarified pertains to actions during their term in office.

“The removal of a Federal Reserve Governor pertains solely to issues regarding the Board member’s capability to effectively and faithfully discharge their statutory responsibilities, considering events during their tenure,” Cobb wrote. Cobb was appointed by former President Joe Biden.

“President Trump has not stated a legally permissible cause for Cook’s removal,” the ruling added.

The decision means Cook will be able to participate in the Fed’s Sept. 16-17 meeting, when it is expected to reduce its key short-term rate by a quarter-point to between 4% and 4.25%.

Federal Reserve governors aren’t like cabinet secretaries and the law doesn’t allow a president to fire them over policy disagreements or because he simply wants to replace them. Congress sought to insulate the Fed from political pressure, the court noted, by giving Fed governors long, staggered terms that make it unlikely a president can appoint a majority of the board in a single term.

“Allowing the President to unlawfully remove Governor Cook on unsubstantiated and vague allegations would endanger the stability of our financial system and undermine the rule of law,” Cook’s lawyer, Abbe Lowell, said in a written statement. “Governor Cook will continue to carry out her sworn duties as a Senate-confirmed Board Governor.”

The White House did not immediately comment.

The court also directed the Fed’s board of governors and its chair, Jerome Powell, “to allow Cook to continue to operate as a member of the Board for the pendency of this litigation.”

Lowell had argued in court filings that Cook was entitled to a hearing and a chance to respond to the charges before being fired, but was not provided either. The court agreed that she was not provided due process by the administration. Her lawsuit denied the charges but did not provide more details.

The case could become a turning point for the 112-year-old Federal Reserve. No president has sought to fire a Fed governor before. Economists prefer independent central banks because they can do unpopular things like lifting interest rates to combat inflation more easily than elected officials.

Many economists worry that if the Fed falls under the control of the White House, it will keep its key interest rate lower than justified by economic fundamentals to satisfy Trump’s demands for cheaper borrowing. That could accelerate inflation and could also push up longer-term interest rates, such as those on mortgages and car loans. Investors may demand a higher yield to own bonds to offset greater inflation in the future, lifting borrowing costs for the U.S. government, and the entire economy.

If Trump can replace Cook, he may be able to gain a 4-3 majority on the Fed’s governing board. Trump appointed two board members during his first term and has nominated a key White House economic adviser, Stephen Miran, to replace Adriana Kugler, another Fed governor who stepped down unexpectedly Aug. 1. The Senate Banking Committee is scheduled to vote Wednesday on Miran’s nomination.

Trump has said he will only appoint people to the Fed who will support lower rates.

Trump has repeatedly attacked Powell and the other members of the Fed’s interest-rate setting committee for not cutting the short-term interest rate they control more quickly. It currently stands at 4.3%, after Fed policymakers reduced it by a full percentage point late last year. Trump has said he thinks it should be as low as 1.3%, a level that no Fed official and few economists support.

Powell recently signaled that the central bank was leaning toward cutting its rate at its meeting next week.

Cook is the first Black woman to serve as a governor. She was a Marshall Scholar and received degrees from Oxford University and Spelman College, and prior to joining the board she taught at Michigan State University and Harvard University’s Kennedy School of Government.

___

AP writer Will Weissert contributed to this report.

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