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Federal Reserve governor Lisa Cook has filed a lawsuit against Donald Trump’s move to fire her, kicking off a landmark legal battle with sweeping implications for the independence of the world’s leading central bank.
Cook on Thursday filed a lawsuit against the US president in federal court in Washington, alleging Trump’s actions infringed on her constitutional rights and US law. The suit came after Trump said on Monday that he was sacking her immediately over claims she lied on mortgage applications.
“This case challenges President Trump’s unprecedented and illegal attempt to remove Governor Cook from her position which, if allowed to occur, would the first of its kind in the Board’s history,” the lawsuit said.
It added that “the operational independence of the Federal Reserve is vital to its ability to make sound economic decisions, free from the political pressures of an election cycle.”
The market reaction to Cook’s firing was muted, but many economists, legal scholars and investors noted that Trump’s move marked one of the gravest threats to the Fed since it became independent from government 74 years ago.
The case revolves around whether the mortgage fraud allegations made against Cook by Bill Pulte, a Trump ally and the federal housing director, constitute “cause” to fire a Fed governor who was confirmed by Congress.
Pulte claims Cook indicated in lending documents that two properties she had purchased within weeks of each other — in Michigan and in Atlanta — were primary residences. Typically mortgages on primary residences come with better terms.
The allegations posted online by Pulte date back to 2021, before Cook was nominated by the Biden administration for the Fed job in 2022.
Cook is the central bank’s first black woman governor. Her term was set to run until 2038.
Pulte referred his allegations to the justice department, but authorities have not filed any charges against her or accused her of wrongdoing.
Cook’s lawsuit said “the claims made in Director Pulte’s referral letter are unsubstantiated allegations about conduct that predates her Senate confirmation, and Governor Cook has never been given an opportunity to address them”.
It argues that Cook’s firing violated the Federal Reserve Act of 1913, which established the Fed as the central bank of the US, because it did not prove that there was “cause” to fire her, and because she was deprived of her “statutory right to notice and a hearing”.
The suit also says the firing breached Cook’s Fifth Amendment rights to due process because she was removed without “any process whatsoever”.
Cook also pre-emptively named the Federal Reserve Board of Governors and chair Jay Powell as defendants, to block them from executing Trump’s dismissal. The Fed has said previously it would abide by court rulings.
US district judge Jia Cobb, who was appointed by former President Joe Biden, will preside over the case. Legal experts broadly expect the case to ultimately land with the Supreme Court.
The White House did not immediately comment on the matter.
Trump’s move to fire Cook is the latest attack on the central bank. The president wants US interest rates cut by 3 percentage points from their current range of 4.25 to 4.5 per cent.
His allies have also called for an overhaul of the Fed’s governance structures, including more control of its budget and measures that would make it easier to fire board officials.
On Tuesday, Treasury secretary Scott Bessent said he had encouraged Fed chair Jay Powell to undertake an internal review before the Trump administration commissioned an external one.
“The Fed is an unaccountable institution and its relationship with the American people depends on a high level of trust,” Bessent told Fox Business, adding that incidents such as the allegations against Cook “puncture that trust”.
If Trump’s efforts to fire Cook succeed, it would give him a majority of appointees on the seven-strong Federal Reserve board.
All seven members have votes on the rate-setting Federal Open Market Committee and hold sway over the renewal of the terms of regional Fed presidents, as well as governance of the central bank’s operations.
The Fed said on Tuesday it would “abide by any court decision”, which is expected in the coming days.