This is what makes Federal Reserve Board member Lisa Cook’s August complaint against former President Donald Trump so courageous. He unsuccessfully attempted to oust her from office, but she remains defiant. Cook’s legal challenge was the first of its kind to be filed in the U.S. District Court for the District of Columbia. In her suit she claims that Trump’s campaign to remove her is “illegal and unprecedented.” Beyond the merits, the case has an important role in shining a light on the independence of the central bank and due process rights of its governors.
The lawsuit asserts that Trump’s recent actions amount to a deprivation of Cook’s constitutional right to due process. It further claims that he violated her rights to due process guaranteed under the Federal Reserve Act. According to legal documents, Cook has never been charged with any instance of misconduct. She hasn’t publicly defended herself from the specific allegations leveled at her by a high-ranking Trump administration official. This official even tried to accuse Cook of mortgage fraud, leading Trump to begin the process of firing her.
A judge quickly granted Cook’s requested relief in the case. Despite its late arrival, he provided a hearing, set for Friday morning, within hours of the measure’s filing! The resulting state of affairs has led economists to sound alarms about the threat to preservation of the Federal Reserve’s independence. If Trump is able to prevail in kicking out Cook, it would be unprecedented. Such a change would represent the first removal of its type in the Federal Reserve’s 112-year history.
Cook’s lawsuit fits the high-profile clash between her and Trump under the microscope. He cited a “criminal referral” from Federal Housing Finance Agency Director William Pulte as the legal basis for his actions. In response to these allegations, Cook stated that she would seek out her financial documents to answer “any legitimate questions and provide the facts.”
The battle between Cook and Trump has puzzled a lot of financial analysts and market watchers alike. Steve Sosnick, chief strategist at trading firm Interactive Brokers, noted that the current market sentiment appears indifferent, stating, “Right now, the message markets are sending is: ‘We really don’t care.’” This feeling speaks to a larger uncertainty regarding the influence Cook’s situation will have on monetary policy going ahead.
White House spokesperson Kush Desai defended Trump’s actions, asserting that “the removal of a governor for cause improves the Federal Reserve Board’s accountability and credibility for both the markets and American people.” This defense of the rule is further evidence of the administration’s desire to maintain more oversight of the Federal Reserve.
Now market analysts are waiting with bated breath to see what happens next in Cook’s case. Ivan Feinseth, an independent market analyst at Tigress Financial, points to another, more provocative possibility. If Cook’s replacement leads to lower interest rates, then the market will get a nice shot in the arm.
As discussions surrounding central bank governance intensify, the potential for a Trump-appointed majority on the Federal Reserve Board raises alarms about future appointments and policy directions. Appointments for presidents of each of the 12 Federal Reserve banks are due to occur in February as well. That would be a huge change in power dynamics on the board.
