The independence of the Federal Reserve faces unprecedented challenges! Trump's dismissal of Governor Cook sparks legal controversy

According to the Zhitong Finance APP, U.S. President Donald Trump announced late Monday night the dismissal of Federal Reserve Governor Lisa Cook, a move that immediately sparked legal controversy and could ignite a constitutional storm regarding the independence of the Federal Reserve.

Cook is the first African American woman to join the Federal Reserve Board, nominated by President Biden and confirmed by the Senate in 2022, serving until 2038. In a statement, she firmly asserted that she would not resign and stated that the president has no authority to dismiss her without legitimate cause. Cook's lawyer, Abbe David Lowell, explicitly stated that they would file a lawsuit against Trump's decision, seeking a court injunction to prevent the dismissal from taking effect.

According to the Federal Reserve Act, the president can only dismiss a governor "for cause," but the definition of "for cause" has never been clearly defined in Congress, and courts have historically limited it to misconduct, neglect of duty, or malfeasance during the term. The reason cited by Trump is that Cook allegedly falsified mortgage records while serving as a professor at Michigan State University. Analysts point out that these allegations have not entered judicial proceedings and occurred before Cook joined the Federal Reserve, leaving significant controversy over whether they constitute "for cause."

Michael Feroli, Chief U.S. Economist at JP Morgan, noted that such allegations typically do not apply to "in-office protection clauses." Additionally, the recent Supreme Court ruling expanding presidential authority to dismiss members of independent agencies specifically excluded the Federal Reserve, highlighting the uniqueness of this case.

If the court ultimately supports Trump's move, he will have the opportunity to further reshape the Federal Reserve. Recently, Governor Adriana Kugler announced her resignation, and Federal Reserve Chairman Jerome Powell's term will also expire in May next year. If Cook is forced to leave, Trump will simultaneously hold the appointment power for three seats, along with his previous appointees Michelle Bowman and Christopher Waller, giving this faction a majority in the seven-member board, which could not only influence the direction of the federal funds rate but also have far-reaching implications for the reappointment review of regional Federal Reserve presidents in 2026.

According to foreign media citing informed sources, Trump has indicated to his advisors that he will announce Cook's successor soon, with his economic advisor Milan as the top choice. Additionally, former World Bank President and close ally of the president, David Malpass, is also under consideration. If Milan replaces Cook, Malpass may be nominated to fill another vacancy on the board. Analysts point out that this would give Trump more influence within the Federal Reserve Board and could even alter its long-standing independent operational structure.

Foreign media reports indicate that the Trump administration is studying ways to exert influence over the regional Federal Reserve Banks, particularly regarding the selection of local Fed presidents. Currently, the Federal Open Market Committee (FOMC) consists of seven governors and five regional Fed presidents, with local Fed presidents not nominated by the president and not requiring Senate confirmation. Sources say that after the news of Cook's dismissal was announced, several regional Fed presidents held emergency calls, fearing this could signal the White House's further weakening of the central bank's independence.

During a cabinet meeting at the White House, U.S. Treasury Secretary Janet Yellen defended Trump, stating, "The independence of the Federal Reserve comes from a political arrangement between it and the American public. The public's trust is its only source of credibility. The president is restoring public trust in the government by eliminating waste, fraud, and corruption." "This statement shows that the White House is trying to find legitimacy and political justification for the impeachment action.

Although the incident has caused a huge uproar in Washington's political circles and academia, the financial market's reaction has been relatively muted. On Tuesday, U.S. stocks continued to rise, with the Dow Jones Industrial Average up 0.3%, the S&P 500 up 0.4%, and the Nasdaq up 0.44%. U.S. Treasury yields showed limited overall volatility, with the 10-year Treasury yield slightly declining to 4.255% and the 30-year Treasury yield maintaining around 4.9%. The U.S. dollar index briefly fell 0.4% after the news was announced, then regained ground and rose slightly by 0.2%.

Evercore ISI strategists pointed out that the market may underestimate the risk of damage to the Federal Reserve's independence, which may manifest in a further steepening of the yield curve, rising inflation risk premiums, and a weakening dollar in the future. Deutsche Bank warned that if investors' concerns about political interference in monetary policy intensify, long-term U.S. Treasury rates could be pushed higher, triggering a market adjustment. The uncertainty surrounding political and policy prospects has heightened risk aversion. Spot gold prices rose to over $3,393 per ounce, reaching a two-week high, with a daily increase of 0.83%