Setback for Trump as court rejects bid to oust Federal Reserve governor Lisa Cook — what's next

Lisa Cook can remain a Federal Reserve governor, an appeals court ruled on Monday (September 15) – rebuffing US President Donald Trump’s efforts to remove her just ahead of a key vote on interest rates.

What happens next?

According to the Associated Press, the Trump administration is expected to quickly turn to the Supreme Court in a last-ditch bid to oust Lisa Cook.

The Trump administration only has hours to appeal to the US Supreme Court if it hopes to block Cook from attending the Fed's policy meeting.

It's the first time that a president has pursued such action since the central bank's founding in 1913 - in the latest step in a legal battle that threatens the Fed's longstanding independence.

Fed policy meeting

The Fed policy meeting will be held on Tuesday and Wednesday where it is expected to cut US interest rates to shore up a cooling labor market.

The Fed's interest rate setting committee will meet with all seven governors and the 12 regional bank presidents. Twelve of those 19 officials will vote on changing the central bank's short-term rate: All seven governors plus five regional presidents, who vote on a rotating basis.

In the wake of the meeting, Cook’s lawsuit seeking to permanently block her firing must still make its way through the courts.

Why Trump wants to remove Lisa Cook?

Trump sought to fire Cook on August 25, but a federal judge ruled last week that the removal was illegal and reinstated her to the Fed’s board.

Trump appointee Bill Pulte accused Cook of mortgage fraud because she appeared to claim two properties as “primary residences” in July 2021, before she joined the board.

Such claims can lead to a lower mortgage rate and smaller down payment than if one of them was declared as a rental property or second home.

Cook has denied any wrongdoing and has not been charged with a crime. According to documents obtained by The Associated Press, Cook did specify that her Atlanta condo would be a “vacation home,” according to a loan estimate she obtained in May 2021.

And in a form seeking a security clearance, she described it as a “2nd home.” Both documents appear to undercut the administration’s claims of fraud.

US District Judge Jia Cobb had ruled on September 9 that Trump's claims that Cook committed mortgage fraud before taking office likely were not sufficient grounds for removal under the law that created the Fed.

In a 2-1 decision, the appeals court found that Cook's due process rights were violated because the administration did not give her a formal opportunity to respond to the charges.

Who is Lisa Cook?

Cook is the first Black woman to serve as a Fed 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.

Unprecedented move

The White House campaign to unseat Cook marks an unprecedented bid to reshape the Fed’s seven-member governing board, which was designed to be largely independent from day-to-day politics.

No president has fired a sitting Fed governor in the agency’s 112-year history.

Separately, Senate Republicans on Monday confirmed Stephen Miran, Trump’s nominee to an open spot on the Fed’s board.

Chair Jerome Powell signaled in a high-profile speech last month the Fed would likely cut its key rate at this meeting, from about 4.3% to 4.1%. Other borrowing costs, such as mortgage rates and car loans, have already declined in anticipation of the cut and could move lower.

The attempt to fire Cook is seen by many legal scholars as a threat to erode the Fed’s longtime political independence. Economists prefer independent central banks because they can do unpopular things like lifting interest rates to combat inflation more easily than elected officials.