Fed's Cook rejects Trump removal bid as term runs to 2038

Federal Reserve governor Lisa Cook's lawyers told the White House Wednesday there is no legal basis to remove her, rejecting mortgage-fraud allegations behind President Trump's renewed firing bid.

"Governor Cook has never committed mortgage fraud or any intentional wrongdoing, and there is no legally cognizable cause for removing her from the Federal Reserve Board," Abbe David Lowell, Cook's attorney, wrote in a letter to the White House.

The response, submitted to meet an Aug. 26 deadline set by White House deputy chief of staff Dan Scavino, comes after the Supreme Court in June blocked Trump's first attempt to fire Cook in a 5-4 ruling that required the president to give her notice and a chance to contest the allegations. The Fed has held rates steady since December, and three Fed presidents voted to raise rates in July; Cook is among several governors who have signaled openness to higher rates if inflation doesn't move lower.

The case is the first attempt by a president to remove a central banker since the Fed's founding in 1913, and economists argue it threatens the insulation from political pressure that lets a central bank raise rates when a president would rather it didn't. If Trump succeeds, his appointees would gain a majority on the seven-member board, where Cook is one of three governors appointed by President Joe Biden.

The mortgage dispute

The allegations center on a condominium Cook bought in Atlanta in July 2021, before she joined the Fed. Standardized loan forms she signed referred to both the Atlanta condo and a Michigan residence she refinanced around the same time as her primary residence. Primary residences can receive lower mortgage rates or down payments than second homes.

Lowell acknowledged the paperwork inadvertently described the Atlanta condo as Cook's primary residence but said the lender wasn't misled. "The lender, which previously worked with Governor Cook to refinance her Massachusetts property earlier that year, knew that she had lived in Michigan for more than 15 years and worked full-time as a tenured professor at Michigan State University," he wrote. Cook "regularly indicated her 'primary residence' or 'permanent residence' to be Michigan" and confirmed the Atlanta property was a "2nd Home," the letter said.

The allegations originated a year ago with Federal Housing Finance Agency Director Bill Pulte, who referred Cook to the Justice Department and suggested bank fraud punishable by 30 years in prison. No charges have been brought, and Reuters reported last year that Cook had indicated to a lender that one of the homes was a vacation property. Michigan's local tax authority said Cook had not broken rules for tax breaks on the home she declared as her primary residence.

A precedent in the White House

Lowell also surfaced news reports that Trump himself and five members of his cabinet, including Treasury Secretary Scott Bessent, had made dubious claims of a property's primary residence status. "Surely the President does not believe himself 'unfit for office' because he signed these contradictory 'primary' mortgage documents," Lowell wrote.

The Supreme Court's June ruling, authored by Chief Justice John Roberts and joined by the court's three liberals and Justice Brett Kavanaugh, said whether sufficient cause exists turns on how serious the alleged misconduct is and how closely it connects to a governor's duties. The case now returns to U.S. District Judge Jia Cobb, where Cook's original lawsuit is still pending.

Trump has long pressed the Fed to lower rates, threatening to fire former Chairman Jerome Powell and pursuing a criminal investigation of him over building renovations that a federal judge found to be a thinly disguised effort to pressure his resignation. New Chairman Kevin Warsh, who took the reins in May, has echoed past Fed chiefs in warning that any loss of political independence would imperil the central bank's inflation-fighting credibility.

The question now is whether Trump again attempts to fire Cook with a more formal review process, and if so, how the courts respond. Removing Cook, whose term otherwise runs until 2038, would leave her seat empty until the Senate confirms a successor — and shift the balance of the Fed's rate-setting committee toward the administration's preference for holding rates steady.

This article is for informational purposes only and does not constitute investment advice.