Can Trump fire Cook? This is the legal community's answer

Former President Donald Trump's attempt to fire Federal Reserve Governor Lisa Cook is sparking a significant legal controversy regarding the White House's control over the Federal Reserve.

On August 26, Wall Street Insight reported that Trump announced on social media that he was terminating Cook's position "effective immediately," accusing her of fraudulent behavior in mortgage applications. Cook's defense attorney, Abbe Lowell, has pledged to file a lawsuit in response. In a statement, Cook said:

President Trump claims he has 'reason' to fire me, but there is no legal basis for this, nor does he have the power to do so. I will not resign. I will continue to fulfill my duties to help the U.S. economy, just as I have been doing since 2022.

Cook was appointed by President Biden in 2022, with a term set to last until 2038. Bill Pulte, Director of the Federal Housing Finance Agency, accused Cook of misconduct during the application process for two home mortgages in 2021, which could constitute mortgage fraud.

However, these accusations remain just that—accusations. Cook has not faced a formal investigation or criminal charges, nor has she been convicted. The alleged misconduct occurred a year before Cook's appointment as a governor and is unrelated to her duties at the Federal Reserve. Legal experts believe that unverified allegations are unlikely to meet the standard for "removal for cause."

According to Section 10 of the Federal Reserve Act of 1913, members of the Federal Reserve Board can only be removed "for cause," but the law does not explicitly define what constitutes "cause." Generally, "cause" typically includes three scenarios: inefficiency, neglect of duty, and misconduct during the term.

The outcome of the dispute between Trump and Cook will largely depend on the court's interpretation of the legal standard of "for cause."

Legal Proceedings: Preliminary Injunction is Key

If Cook files a lawsuit, she can immediately seek a preliminary injunction to prevent her dismissal while the lawsuit is ongoing.

Both parties will submit briefs outlining their respective arguments, and the Trump administration will have the opportunity to provide more details regarding the allegations against Cook.

The outcome of the injunction ruling may depend on Cook's ability to persuade the judge that if the status quo is not maintained, she and the Federal Reserve will suffer "irreparable harm."

A decision on the preliminary injunction could come quickly, which is crucial because the judge's ruling on whether the case actually constitutes "for cause" removal may take months or longer.

The case may not be delayed for too long. Both parties can appeal the injunction ruling to the federal appellate court. If Cook's injunction request is denied and the appeal upholds the ruling, her dismissal will remain in effect. If the injunction is granted and supported by the appellate court, Cook can continue to serve during the progression of the case.

The Supreme Court May Be the Final Arbiter

This dispute may ultimately be decided by the U.S. Supreme Court.

Any ruling regarding the preliminary injunction can be appealed to the federal appellate court and ultimately reach the Supreme Court Considering that Trump has a 6-3 conservative majority in this court, and the court has approved the implementation of his legally challenged policies multiple times this year, this may put him in a favorable position in the litigation.

However, the Supreme Court gave an important hint in a ruling this May. At that time, the court allowed Trump to dismiss officials from two other government agencies without providing a reason, but specifically noted that this decision does not imply that the president has similar powers over the Federal Reserve, stating that the Federal Reserve is "a uniquely structured private entity."

This statement has been interpreted to mean that Trump cannot dismiss Federal Reserve officials without cause, but it leaves open the possibility of dismissing Cook for "sufficient reason." Reportedly, in U.S. legal practice, "sufficient reason" is typically interpreted to cover three situations: inefficiency, dereliction of duty, and misconduct during the term of office.

However, there has yet to be a unified consensus on these terms, which gained prominence in the U.S. Congress over a century ago. Judges will have to determine whether the mortgage fraud allegations against Cook constitute any of these.

If this case ultimately reaches the Supreme Court, it will be a direct test of this gray area.

Background of the "Mortgage Fraud" Allegations

Bill Pulte, the director of the Federal Housing Finance Agency, is a staunch ally of Trump, and he accused Cook on social media of lying in loan applications for two properties.

Previously, Wall Street Insight mentioned that Cook claimed both properties in Michigan and Georgia as her primary residence to obtain more favorable loan terms. He stated that the applications for the two properties were submitted two weeks apart.

In a letter, Trump stated that it is "incredible" that Cook did not know that two separate mortgage applications submitted in the same year required her to claim each property as her primary residence. Trump wrote:

At the very least, the actions involved demonstrate serious negligence in financial transactions, raising doubts about your experience and credibility as a financial regulator.

According to media reports, the Trump administration had also made similar accusations against other critics, such as California Senator Adam Schiff and New York Attorney General Letitia James, both of whom denied the allegations