President Trump’s move to fire Federal Reserve governor Lisa Cook could roil financial markets, raise uncertainty for investors and heighten concerns that the White House is trying to wrest control of the historically independent central bank, according to Wall Street analysts.
Mr. Trump announced her removal in a letter posted Monday night on Truth Social, citing allegations that she had engaged in mortgage fraud.
Cook denies Mr. Trump has the legal authority to fire her and pledged on Tuesday not to resign. “I will continue to carry out my duties to help the American economy as I have been doing since 2022,” she said in a statement. Cook’s lawyer also vowed to fight the firing in court.
Asked by CBS News chief White House correspondent Nancy Cordes on Tuesday whether the Trump administration is effectively weaponizing government by digging into the mortgage records of public officials, Mr. Trump responded, “No. They’re public.”
Cook has not been charged with a crime. Federal Housing Finance Agency head Bill Pulte, who leveled the initial accusations against Cook, has called on the Department of Justice to investigate Cook.
Cook was appointed to a 14-year term on the Fed’s Board of Governors in 2022 and also serves on the Federal Open Market Committee (FOMC), which sets short-term interest rates in the U.S.
A Federal Reserve spokesperson said in a statement Tuesday that the central bank will “continue to carry out its duties as established by law.” The Fed also pointed to Cook’s statement that she plans to contest her firing in court and said it “will abide by any court decision.”
“Congress, through the Federal Reserve Act, directs that governors serve in long, fixed terms and may be removed by the president only ‘for cause.’ Long tenures and removal protections for governors serve as a vital safeguard, ensuring that monetary policy decisions are based on data, economic analysis, and the long-term interests of the American people,” the Fed said.
More influence over the Fed?
Financial markets were subdued on Tuesday in digesting Mr. Trump’s effort to oust Cook. Yet the decision was the talk of Wall Street, with multiple analysts saying Cook’s dismissal could open the door to Mr. Trump gaining control of the Fed’s seven-member board.
“President Trump’s decision to fire Lisa Cook as a Fed governor gives him the ability to gain a majority at the Federal Reserve Board and to influence the broader composition of the FOMC,” Jaret Seiberg, an analyst with TD Securities, said in a report to investors, referring to the central bank’s rate-setting panel.
The White House didn’t respond to a request for comment on whether firing Cook could impact financial markets and compromise the Fed’s independence.
Mr. Trump has also nominated Stephen Miran, who heads the White House’s Council of Economic Advisers, to serve on the Fed board. Mr. Trump is slated to name a nominee to succeed Fed Chair Jerome Powell whose term ends in May of 2025; Powell is scheduled to continue serving on the Fed board until January of 2028 and could continue to serve in that role after stepping down as Fed chair.
If Cook were to leave the Fed board, Mr. Trump could ultimately end up with five appointees on the panel by mid-2026, giving the White House more leverage to influence monetary policy, according to investment advisory firm Capital Economics.
During a meeting Tuesday, Mr. Trump demurred when asked by a reporter who he’s considering to replace Cook on the Fed board. “We’ll have a majority very shortly so that will be great,” he said.
Mr. Trump has repeatedly assailed Powell for the central bank’s decision to hold off in cutting interest rates, with policy makers remaining cautious about reducing borrowing costs so long as inflation remains above the Fed’s 2% target. Powell signaled last week that a rate cut could be on the horizon during a speech at the Jackson Hole, Wyoming, economic symposium.
No guarantee of lower interest rates
The 12-member FOMC is made up of seven members of the Fed Board of Governors; the president of the Federal Reserve Bank of New York; and four of the 11 Fed bank presidents, who serve on a rotating basis for one-year terms.
That interlocking relationship suggests that even stacking the Fed board with loyalists wouldn’t guarantee the interest rate cuts that Mr. Trump has demanded, Gregory Daco, chief economist at strategy consulting firm EY-Parthenon, told CBS MoneyWatch.
“It’s not just about the administration nominating individuals and Congress confirming those individuals — it’s also about how these individuals perceive their role and value their independence,” he said.
Analysts with Capital Economics noted that Mr. Trump’s appointees would need to persuade other FOMC members about setting monetary policy in ways that align with the White House’s economic objectives. That “could be difficult if those others felt compelled to defend the Fed from political attacks,” they said in a report.
For decades, investors have seen the Fed as a generally neutral arbiter guided by its mandate to keep inflation in check and the job market humming. As a result, any perception that Mr. Trump is undermining the Fed’s autonomy could rattle markets, according to Nigel Green, CEO of global financial advisory firm deVere Group.
“Investors are reacting because the independence of the central bank is critical to market stability, and any sign of political capture raises alarm bells everywhere,” Green said in an email.
Meanwhile, the question of whether Cook can be removed from the Fed board remains unresolved. Under the Federal Reserve Act of 1913, the president has authority to remove Fed appointees before their term ends, but only for “cause.” Analysts said the legal dispute over Cook’s removal could wind up in the Supreme Court.
“The situation is extremely fluid,” Daco said. “So until we get some clarity as to the exact conviction, you’re not necessarily going to see much significant movements in markets.”
