Federal Reserve Governor Cook sues for dismissal, suggesting that the mortgage originated from a clerical error, warning that dismissal could pose risks to the U.S. economy

On Thursday local time, Federal Reserve Governor Lisa Cook sued Trump for attempting to remove her from her position as a Federal Reserve governor. Cook seeks to block Trump's move to dismiss her from the Federal Reserve Board.

According to court records, Cook filed the lawsuit on Thursday in federal court in Washington. Cook accuses Trump of trying to dismiss her without legal justification, violating the law.

Cook has been accused of mortgage application fraud. Trump announced on Monday that he intended to fire Cook, citing that she submitted false information in her mortgage application. The allegation was first disclosed by Bill Pulte, the director of the Federal Housing Finance Agency appointed by Trump, and was referred to the Department of Justice. However, Cook has not faced any civil or criminal charges to date.

In the lawsuit, Cook refutes Trump's allegations of her involvement in mortgage fraud, claiming that it is merely an excuse to fire her and attempt to control the Federal Reserve. Trump "fabricated" the reasons for her dismissal, violating the Federal Reserve Act (FRA), which requires the president to have "cause" to remove a Federal Reserve governor. Cook stated that this action is an "unprecedented attack" on the independence of the Federal Reserve, and her dismissal would cause "irreparable harm" to the U.S. economy.

The lawsuit states:

Even if the president more cautiously concealed his true motives against Governor Cook, the fabricated reason—unverified and unproven allegations that Cook may have made errors on her mortgage application form prior to her Senate confirmation—cannot constitute the "cause" referred to in the FRA and lacks precedent support.

The president's true motive is to swiftly remove her to free up a seat for Trump to fill, advancing his agenda to undermine the independence of the Federal Reserve.

Cook's lawsuit also names Federal Reserve Chairman Jerome Powell and the Federal Reserve Board as defendants, requesting the court to prevent them from executing Trump's dismissal order. Powell and the Federal Reserve Board are defendants only to the extent that they may carry out Trump's alleged action of dismissing Governor Cook. A Federal Reserve spokesperson declined to comment on the case and stated that they would comply with any court ruling.

Cook requests the court to rule that Trump's attempt to dismiss her is illegal and invalid, confirming that Federal Reserve governors can only be removed for "cause"—including misconduct, inefficiency, or neglect of duty—and that "unverified allegations of mortgage fraud" do not meet this standard.

When establishing the Federal Reserve, the U.S. Congress stipulated that Federal Reserve governors can only be removed for "cause," but did not explicitly define its meaning. The relevant laws of other independent agencies generally list "neglect of duty, inefficiency, or misconduct" as grounds for removal. No U.S. president has ever attempted to remove a Federal Reserve governor.

Cook was appointed by former President Biden, and her term as a Federal Reserve governor lasts until 2038. She vowed to remain in her position.

Cook Seeks Temporary Restraining Order

Cook hopes that a U.S. judge will issue a temporary restraining order—preventing Trump and other defendants from taking action during the lawsuit proceedings to avoid the implementation of her dismissal decision, thereby maintaining the status quo of the Federal Reserve and protecting the interests of the American public Cook's lawyer Abbe Lowell stated in the submitted application for a temporary injunction that Trump's allegations regarding Cook's mortgage are unfounded. The lawyer wrote:

Even if she did commit the so-called "violation," Trump has no grounds to remove her, partly because the alleged actions occurred before she joined the Federal Reserve Board.

Whether certain actions constitute just cause for removal should depend on when they occurred, whether they took place during the performance of official duties, and the severity of the actions.

Even if the president presented conclusive evidence that she jaywalked in college, it would not constitute just cause for the removal of a Federal Reserve governor.

Here, even if Governor Cook made errors on her personal mortgage application before taking office, the president has no grounds to remove her based on that.

Cook's Defense Argument

In documents submitted to the court, Cook's lawyers first presented a possible defense argument in response to the allegations against her.

Cook's lawyers attempted to undermine the fraudulent intent attributed to her by Trump and Pulte since last week. They stated that even if there were errors, they were not intentional deceptions, and no one was harmed, which involves a legal standard known as "substantiality."

The lawyers wrote in the application for a temporary restraining order that Cook had incorrectly labeled the purpose of the property on her mortgage application long before joining the board, and there were no allegations of her subjective intent or substantiality, which do not constitute the type of "fault" that would warrant removal for just cause.

Cook's lead attorney Abbe Lowell's team also wrote that Trump and Pulte "did not even explicitly claim that Ms. Cook benefited from any document errors or that the errors were intentional."

Lawsuit Against Trump to Remove Cook Set for Friday

Just hours after Cook filed the lawsuit, the court quickly scheduled a hearing. A U.S. judge has arranged for the first hearing on Trump's removal of Cook to take place on Friday at 10 a.m. Eastern Time. Federal Judge Jia Cobb, who is overseeing Cook's case, has scheduled the hearing for Friday. Notably, Judge Jia Cobb was appointed by former President Biden in 2021.

Media analysis suggests that Cook's lawsuit, challenging Trump's action to revoke her Federal Reserve governorship, has sparked a historic legal battle surrounding the independence of the Federal Reserve. This unprecedented legal war will test the power of the U.S. president over the seven-member board of the Federal Reserve.

Given the significance of this case, any court ruling is almost certain to be appealed, potentially reaching the Supreme Court. In recent years, the Supreme Court has weakened job protections for employees of independent federal agencies, but it has never been tested in the context of the Federal Reserve. However, in May of this year, the Supreme Court hinted in an unsigned order that protections for Federal Reserve employees might be stronger than those for other agencies, describing the Federal Reserve as "a uniquely structured, quasi-private entity."

However, if it is revealed that Cook indeed made false statements on the mortgage documents, it would cast a shadow over her personally and the entire Federal Reserve institution, as the Federal Reserve is the highest regulatory authority in the U.S. financial system

Trump vs. the Federal Reserve

Trump stated on Tuesday that he is ready to go to court. He also expressed a desire to appoint Cook's successor as soon as possible.

Since taking office, Trump has continuously pressured the Federal Reserve to cut interest rates. He has frequently criticized Powell and even threatened to fire him.

With Cook's status still uncertain, the next FOMC meeting of the Federal Reserve will be held on September 16-17. At that time, the board members serving under Powell will be divided into two factions: two were appointed by Trump during his first term, and two were appointed by Biden. The board members vote eight times a year alongside five presidents of the Federal Reserve regional banks to decide on interest rate policy, aiming to curb inflation while promoting a strong labor market.

Before Trump attempted to fire Cook, Powell had already hinted that the Federal Reserve was moving toward a rate cut next month. So far this year, the federal funds rate has remained above 4.25%. Tariffs have raised inflation levels, which are still above the Federal Reserve's annual target of 2%. However, Powell emphasized in a speech last week that there is increasing reason to believe that the price increases caused by tariffs will not form a long-term trend.

The concern instead is the job market. In early August, a report from the U.S. Department of Labor significantly revised down the job creation data from this spring. Hours after the data was released, Trump fired the director of the Bureau of Labor Statistics who published the report