Since 1935, the Banking Act has protected the independence of the Federal Reserve, the US central banking system, from presidential interference. Even when past politicians, eager to placate voters with low interest rates, have grumbled about decisions at the Fed, the organisation has consistently held firm.
But its stability is now threatened by an increasingly aggressive president who is fixated on using any lever he has to gain a majority on the bank’s seven-person decision-making body, the Federal Reserve Board of Governors.
On Monday, President Donald Trump informed Lisa Cook, that he was removing her from from the board – “effective immediately”. The president cited allegations that Cook committed mortgage fraud in 2021 by listing two separate properties as her primary residence to obtain more favourable loan terms. Cook’s lawyer, Abbe David Lowell, says the move “lacks any factual or legal basis”.
This is not the president’s first attack on the central bank; he attempted to remove it’s chairman, Jerome Powell, earlier this year. But this latest escalation conveniently opens the door for Trump to appoint a replacement, who will no doubt be amenable to his wishes.
Cook, who has not been charged with any crime, was appointed to the Federal Reserve Board in 2022 by Joe Biden, a Democrat, and is the first Black woman to serve on the board. An expert in international economics, she served on the Council of Economic Advisers during the Obama administration and has also worked at the US treasury.
Cook responded to Trump’s demand within hours, claiming that he has “no authority” to remove her from the role and that “no cause exists under the law”. The Federal Reserve Act states that governors may only be removed “for cause”. What constitutes “cause”, however, is now a matter of fierce legal debate.
The bully versus the stoic
Trump’s feud against the Fed has, understandably, rattled market participants. Economists have long warned that meddling in the central bank’s leadership could undermine price stability and investor confidence – concerns that were validated when Trump’s attempt to fire Powell sent stocks and the dollar tumbling.
Indeed, history has shown that political interference at the Fed can produce dire consequences. In 1970, Richard Nixon appointed his top economic aide, Arthur Burns, to lead the central bank and pressured him to keep interest rates low ahead of the 1972 election. The result was rampant inflation.
But if Trump’s goal is to bully members of the Fed into resignation, he may have met his match in this group of embattled economists and legal professionals comprising the central bank’s board.
For the past 12 months, Trump has cast Powell as an out-of-touch policymaker intent on wrecking the US economy by keeping interest rates high. Yet the former investment banker has remained decidedly undramatic. He has steadfastly refused to lower rates and largely ignored the president’s relentless criticisms and personal attacks, which include witticisms such as “bonehead” and “stubborn moron”. Instead, the chairman has communicated the Fed’s actions in simple, accessible terms, explaining what the central bank is doing and why.
Thus far, Powell’s quiet, low-key rebuttals have proved effective in countering political pressure. And his style will certainly resonate with finance leaders and regulators around the world, many of whom are under pressure to balance strategic growth and strict cost discipline.
A legal battle ahead?
Cook’s own response to Trump’s latest ambush displays similar stoicism. “I have no intention of being bullied to step down from my position because of some questions raised in a tweet,” she said. “I do intend to take any questions about my financial history seriously as a member of the Federal Reserve and so I am gathering the accurate information to answer any legitimate questions and provide the facts.”
In moments such as this, messaging is critical. Cook acted quickly but thoughtfully. She cited the legal limits of the president’s authority clearly and avoided emotional outbursts or opinion-based arguments. She also restated her commitment to her “duties to help the American economy”. In doing so, Cook not only defended her own position but reaffirmed the independence of the Federal Reserve as a cornerstone of US monetary stability. Her measured response sent a clear signal to markets, policymakers and the public that the Fed’s work is guided by law and economic responsibility, not political pressure.
Experts overwhelmingly agree that central banks must remain independent if financial markets are to operate smoothly. Politically motivated attacks on central-bank leaders, therefore, threaten economic stability. Removing Cook from her post will almost certainly damage the credibility of the US central banking system. Future disagreements over monetary policy will be settled not by healthy debate at the Fed but by political manoeuvring in the White House.
The refusals of Powell and Cook to participate in the soap opera that is Trump’s White House is a masterclass in projecting competence in times of crisis. Cook, in particular, has made clear the bank’s commitment to serving American citizens rather than a president attempting to wield unchecked power.
Since 1935, the Banking Act has protected the independence of the Federal Reserve, the US central banking system, from presidential interference. Even when past politicians, eager to placate voters with low interest rates, have grumbled about decisions at the Fed, the organisation has consistently held firm.
But its stability is now threatened by an increasingly aggressive president who is fixated on using any lever he has to gain a majority on the bank's seven-person decision-making body, the Federal Reserve Board of Governors.
On Monday, President Donald Trump informed Lisa Cook, that he was removing her from from the board – “effective immediately”. The president cited allegations that Cook committed mortgage fraud in 2021 by listing two separate properties as her primary residence to obtain more favourable loan terms. Cook's lawyer, Abbe David Lowell, says the move "lacks any factual or legal basis".
