US federal court temporarily blocks Fed Governor Lisa Cook’s firing

A United States federal judge has temporarily blocked President Donald Trump from removing Federal Reserve Governor Lisa Cook, an early setback for the White House in an unprecedented legal battle that could upend the central bank’s long-held independence.

The preliminary ruling by US District Judge Jia Cobb in Washington, DC, late on Tuesday found that the Trump administration’s claims that Cook committed mortgage fraud before taking office were likely not sufficient grounds for her removal.

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The decision blocks her firing while the dispute makes its way through the courts. Cobb ruled that Cook would likely prevail in the lawsuit she filed late last month to overturn her firing.

Cook, a member of the Fed’s Board of Governors, denies any wrongdoing.

“President Trump has not identified anything related to Cook’s conduct or job performance as a Board member that would indicate that she is harming the Board or the public interest by executing her duties unfaithfully or ineffectively,” Cobb wrote in her ruling.

Trump moved to fire Cook in late August, but the Fed has said she remains in her position. The Fed declined to comment on the decision.

White House spokesman Kush Desai on Wednesday defended Trump’s actions, saying the president had “lawfully removed” Cook for cause over the mortgage allegations and “this ruling will not be the last say on the matter.”

Trump on Tuesday did not respond to a reporter’s question about the ruling.

The case, which will likely end up before the US Supreme Court, has ramifications for the Fed’s ability to set interest rates without regard to politicians’ wishes, which is widely seen as critical to any central bank’s ability to keep inflation under control.

“This ruling recognises and reaffirms the importance of safeguarding the independence of the Federal Reserve from illegal political interference,” Cook’s lawyer Abbe Lowell said in a statement.

Federal Reserve governors aren’t like cabinet secretaries, and the law doesn’t allow a president to fire them over policy disagreements or because he simply wants to replace them. Congress sought to insulate the Fed from political pressure, the court noted, by giving Fed governors long, staggered terms that make it unlikely a president could appoint a majority of the board members in a single term.

The law that created the Fed says governors may be removed only “for cause” but neither defines the term nor establishes procedures for removal. No president has ever removed a Fed governor, and the law has never been tested in court.

Cobb found that the “best reading” of the law is that it allows a Fed governor to be removed only for misconduct while in office. The mortgage fraud claims against Cook all relate to actions she took before her Senate confirmation in 2022.

Trump and William Pulte, the Federal Housing and Finance Authority director appointed by the president, said Cook inaccurately described three properties on mortgage applications, which could have allowed her to obtain lower interest rates and tax credits.

The US Department of Justice has also launched a criminal mortgage fraud investigation into Cook and has issued grand jury subpoenas out of both Georgia and Michigan, according to documents seen by the Reuters news agency and a source familiar with the matter.

Cook sued Trump and the Fed, saying the claims did not give Trump the legal authority to remove her and were a pretext to fire her for her monetary policy stance.

Cook, the first Black woman to serve as a Fed governor, has denied the fraud claims in court filings, saying she “did not ever commit mortgage fraud”.

But she has said that even if the allegations were true, it would not be grounds for removal because the alleged conduct occurred before she was confirmed by the Senate.

Pivotal moment for the Fed

The White House has argued that the president has broad discretion to determine when it is necessary to remove a Fed governor and courts lack the power to review those decisions.

Trump has demanded that the US central bank cut rates immediately and aggressively, repeatedly berating Fed Chairman Jerome Powell for his stewardship over monetary policy. The central bank is expected to deliver a rate cut at its September 16-17 policy meeting.

Rate cuts are expected by economists because of economic conditions like a cooling labour market and not political pressure, according to CME Fed Watch, a group that tracks the likelihood of monetary policy decisions.

The legal proceedings are playing out as Trump pushes for the confirmation of Stephan Miran, his pick for the federal governor seat recently vacated by Adriana Kuglar. While he is likely to be approved by the Senate Banking Committee on Wednesday, it remains unclear if he will be confirmed by the full Senate before the central bank’s policy meeting.