Can President Trump Fire Fed Governor Lisa Cook?
Markets hate uncertainty, especially when it comes to monetary policy and interest rates, and questions about the Fed are compounding.
According to a letter he posted to his Truth Social platform, President Donald Trump says he has fired Fed Governor Lisa Cook.
Based on allegations of mortgage fraud made by Federal Housing Finance Agency Director Bill Pulte and referred to Attorney General Pam Bondi, Trump cited his authority under Article II of the Constitution as well as the Federal Reserve Act to remove Cook for cause, effective immediately.
Responding to the president, Cook said she would not leave her position. "President Trump purported to fire me 'for cause' when no cause exists under the law, and he has no authority to do so. I will not resign."
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President Trump has been pressuring Fed Chair Jerome Powell to cut interest rates since he took office in January. And markets certainly weighed whether the president can fire the Fed chair.
Can Trump fire Cook?
Ruling on a matter with different facts but similar questions of law in May, the Supreme Court considered "the constitutionality of for-cause removal protections for members of the Federal Reserve's Board of Governors or other members of the Federal Open Market Committee."
In an unsigned opinion, six justices acknowledged, "The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States."
Meanwhile, Trump is seeking other ways to shape monetary policy. Former Fed Governor Adriana Kugler recently resigned and will be replaced on the seven-person panel by White House Council of Economic Advisers Chair Stephen Miran. Miran is one of 11 candidates to be the next Fed chair.
Should Trump fire cook?
Cook has retained renowned Washington D.C. lawyer Abbe Lowell to represent her. Lowell told the WSJ that Trump's attempt to fire Cooks "is flawed and his demands lack any proper process, basis or legal authority. We will take whatever actions are needed to prevent his attempted illegal action.”
U.S. equity indexes opened modestly lower Tuesday, with market participants generally undisturbed by the news. The U.S. Dollar Index (DXY) was down modestly from 98.43 at Monday's closing bell to 98.23 shortly after Tuesday's opening bell.
The yield on the 2-year U.S. Treasury note was at 3.694% vs 3.730% as of Monday's closing bell.
The yield on the 10-year U.S. Treasury note was up to 4.281% vs 4.275% Monday, and the 30-year yield was at 4.924% from 4.889%.
Shorter-dated Treasuries are more sensitive to Fed interest rate policy. Longer-dated Treasuries say more about the macro picture.
"President Trump’s attempt to fire Federal Reserve governor Lisa Cook is the most dramatic step yet in his effort to take control of the independent central bank and its vast authority over interest rates," write Matt Grossman and Greg Ip of The Wall Street Journal.
As Professor Peter Conti-Brown of the University of Pennsylvania told Grossman and Ip, "To the extent that Fed independence stands for anything, it stands for the idea that monetary policy should not be made by the whims of the sitting president."
According to Conti-Brown, a financial and legal scholar, "If we allow this to become the norm, then this is the end of Federal Reserve independence as we know it."
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