Can Trump fire Cook?

Written by: Bao Yilong, Wall Street Journal

President Trump’s attempt to dismiss Federal Reserve Board member Lisa Cook is igniting a major legal controversy over the White House's control over the Federal Reserve.

On August 26, Wall Street Watch reported that Trump announced on social media that he had terminated Federal Reserve Board member Cook "immediately," accusing her of fraudulent activities in mortgage applications. Cook's defense attorney Abbe Lowell has promised to file a lawsuit regarding this matter. Cook stated in a statement:

President Trump claims there is 'reason' to fire me, but legally there is no such reason, and he does not have the power to do so. I will not resign. I will continue to fulfill my duties to help the American economy, just as I have been doing since 2022.

Cook was appointed by President Biden in 2022, with a term originally set to last until 2038. Bill Pulte, director of the Federal Housing Finance Agency, accused Cook of misconduct during the application process for two housing mortgages in 2021, which could constitute mortgage fraud.

But these allegations are currently still just allegations. Cook has not faced a formal investigation or criminal charges, nor has he been convicted. The alleged misconduct occurred a year before Cook's appointment to the board and is unrelated to his duties as a Federal Reserve board member. Legal experts believe that unproven allegations are difficult to meet the standard for "cause for dismissal."

According to Section 10 of the Federal Reserve Act of 1913, members of the Federal Reserve Board can only be removed "for cause," but the law does not explicitly define what constitutes "cause." Generally speaking, "cause" usually includes three situations: inefficiency in work, dereliction of duty, and misconduct during their tenure.

The outcome of the dispute between Trump and Cook will largely depend on the court's interpretation of the legal standard of "sufficient reason."

Legal Proceedings: Preliminary Injunction Becomes Key

If Cook files a lawsuit, she can immediately apply for a preliminary injunction to prevent her from being fired during the proceedings.

Both parties will submit briefs outlining their respective arguments, and the Trump administration will have the opportunity to provide more details regarding Cook's allegations.

The outcome of the injunction ruling may depend on whether Cook can persuade the judge; if the status quo is not maintained, she and the Federal Reserve will suffer "irreparable harm."

A decision on the preliminary injunction may be made soon, which is crucial because the judge's ruling on whether the case constitutes "just cause" for dismissal may take months or longer.

The case may not be delayed for too long. Both parties can appeal the injunction ruling to the federal appeals court. If Cook's injunction request is denied and the appeal upholds the original ruling, her dismissal will remain valid. If the injunction is granted and supported by the appeals court, Cook may continue to hold her position while the case progresses.

The Supreme Court may become the final arbiter.

This dispute may ultimately be decided by the United States Supreme Court.

Any ruling regarding the preliminary injunction can be appealed to the Federal Court of Appeals and ultimately sent to the Supreme Court.

Considering that Trump has a conservative majority advantage of 6 to 3 in the court, and that the court has approved the implementation of his legally challenged policies multiple times this year, this may put him in a favorable position in the litigation.

However, the Supreme Court gave an important hint in a ruling in May of this year. At that time, the court allowed Trump to dismiss officials from two other government agencies without providing a reason, but specifically noted that this decision did not imply that the president has similar powers over the Federal Reserve, stating that the Federal Reserve is "a uniquely structured private entity."

This statement is interpreted as meaning that Trump cannot dismiss Federal Reserve officials without cause, but it leaves open the possibility of dismissing Cook for "just cause." According to reports, in the practice of relevant U.S. laws, "just cause" is typically interpreted to cover three situations: inefficiency, dereliction of duty, and misconduct during employment.

However, there has been no unified consensus on these terms, which gained attention in the U.S. Congress over a century ago. The judge will have to rule on whether the allegations of mortgage fraud against Cook constitute any of them.

If this case ultimately reaches the Supreme Court, it will be a direct test of this gray area.

The origin and development of "mortgage fraud" charges.

Bill Pulte, the director of the Federal Housing Finance Agency, is a staunch ally of Trump. He accused Cook of lying in loan applications for two properties on social media.

Previously, Wall Street Journal mentioned that Cook designated two properties in Michigan and Georgia as his primary residences to obtain better loan terms. He stated that the application submission times for the two properties were two weeks apart.

Trump stated in the letter that it is "incredible" that Cook did not know about the two separate mortgage applications submitted in the same year requiring her to designate each property as her primary residence. Trump wrote:

At the very least, the behavior in question demonstrates a serious neglect in financial transactions, raising doubts about your experience and credibility as a financial regulator.

According to media reports, the Trump administration has also made similar accusations against California Senator Adam Schiff and New York Attorney General Letitia James, among other critics, both of whom have denied the allegations.