Explained | Why Trump fired Fed Governor Lisa Cook — and why she says he can't. Here's what US Constitution says

US President Donald Trump on Monday (Aug 25) said he has fired Federal Reserve Governor Lisa Cook, posting a letter in which he told Cook that he was removing her from her position "effective immediately". The action, as per reports, is based on allegations by a Trump loyalist that the Fed governor had obtained mortgages on two homes while allegedly claiming they were her primary homes. The allegations have not been proved, and just last week, after they came to light, Cook said she had no "intention of being bullied" into stepping down. Responding to Trump's letter, Cook said Trump "has no authority" to fire her and that she would continue to "carry out my duties to help the American economy as I have been doing since 2022."

What did Cook say about her firing?

In a statement shared by her attorneys with CNN on Monday night, Federal Reserve Governor Lisa Cook said, "President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so". "I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022," added the statement.

Why did Trump fire Cook?

Trump, in the full text of his letter to Cook, stated that he found "sufficient cause" in the allegations against her to fire her. However, reports suggest that Cook's ignoring Trump's demands for lower interest rates could be behind the move. Furthermore, as per the Guardian, Cook's — a Joe Biden appointment — removal would allow Trump to bring in a replacement that would essentially give him more control of the federal policy.

This is the latest retaliatory measure taken by Trump against his political enemies since returning to the White House. While Cook is not a politician, she is a senior Fed policymaker who has repeatedly ignored Trump's calls for rate cuts.

What are the mortgage fraud allegations against Cook?

The attack on Cook was led by Trump loyalist Bill Pulte, who was appointed by the POTUS to lead the US Federal Housing Finance Agency. He alleged that the federal officer had claimed two different properties as her primary residences while obtaining mortgages in 2021. On X, Pulte wrote, "How can this woman be in charge of interest rates if she is allegedly lying to help her own interest rates?" while referring the case to the Department of Justice for investigation.

Following this, on Wednesday, Trump on his social media account demanded that Cook "must resign, now!!!". However, Cook, in a statement, said, "I do intend to take any questions about my financial history seriously as a member of the Federal Reserve and so I am gathering the accurate information to answer any legitimate questions and provide the facts."

Does Trump have the power to fire Cook under the US Constitution?

Donald Trump's firing of Lisa Cook is unprecedented. This is the first instance of a president firing a central bank governor in the American central bank's 111-year history.

But the real question is: Can Trump fire her? In his letter, Trump cites the Federal Reserve Act, saying it "provides that you may be removed, at my discretion, for cause," adding, "I have determined that there is sufficient cause to remove you from your position."

The Federal Reserve Act of 1913 stipulates that a president can only remove a Fed governor "for cause." This has been interpreted by courts as requiring sufficient proof of wrongdoing, such as neglect of duty or malfeasance. However, it must be noted that the allegations against Cook are just that "allegations" which remain unproven. The Federal Reserve is an independent agency, and in the Supreme Court case Humphrey's Executor v. United States (1935), it was established that the President's power to remove officials is not unlimited. With Cook rejecting the firing, the case is expected to lead to a legal challenge that may go to the Supreme Court.