Why Trump Is Trying to Fire Lisa Cook

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1:19All to keep you in control however buying happens next. We're built for payments, built for growth, built for Agentec. PayPal Open, built for all business. Get started at PayPalOpen.com. Bloomberg Audio Studios. Podcasts, radio, news. President Donald Trump shared a letter on social media Monday night, addressed to Federal Reserve Board Governor Lisa Cook. — social media accusing her of falsifying records to obtain favorable terms on a mortgage. The president writing, I have determined there is sufficient cause to remove you from your position. It wasn't exactly a surprise. Trump has been telegraphing that he wanted to remove Cook for days over allegations that she committed mortgage fraud in 2021.

2:08But his attempt to push out a sitting Fed governor still marks a watershed moment. In a cabinet meeting Tuesday, Trump doubled down on his allegations. No, she seems to have had an infraction, and she can't have an infraction, especially that infraction because she's in charge of, if you think about it, mortgages, and we need people that are 100 % above board. It's unclear whether Trump actually has the power to remove Cook. Cook has said she will answer legitimate questions, but will not be, quote, bullied into stepping down. Her lawyer has said they'll challenge the firing in court. And the Federal Reserve said in a statement this afternoon that they will abide by any court decision.

2:49Trump says she's fired. She says she's not. What happens if she shows up to work? Michael McKee is an international economics and policy correspondent for Bloomberg. Does the Fed let her in? Does the president send in the U.S. Marshals to drag her out? Nobody knows exactly how this is going to play out. The Trump administration has been putting pressure on the Federal Reserve to lower interest rates for months. If Cook is removed, Trump could have an opportunity to appoint another Fed governor who's more likely to go through with more aggressive rate cuts. One of the biggest open questions is whether firing Cook would even be legal.

3:25But the other, Michael says, is what it all means for the independence of the Fed. The Fed enjoys a lot of credibility. And if this move were to succeed, then it would tell people that the president is dictating monetary policy rather than the Fed. And that would create a real problem for the Fed with the markets and public credibility.

3:54I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, President Trump moves to fire Federal Reserve Board Governor Lisa Cook. What it means for the Fed and the economy if Trump prevails, and where the case could go from here.

4:14Trump started calling for Federal Reserve Board Governor Lisa Cook's removal last week after the Federal Housing Finance Agency director, Bill Pulte, started raising questions about Cook's mortgage applications. The allegations are that in 2021, she signed a mortgage document in Ann Arbor, Michigan, then said at the time she would make that her permanent residence, then signed another mortgage in Georgia, saying she would make that her permanent residence. And according to the FHFA director of Bill Pulte, that's mortgage fraud. He said that he had been combing records of people to see who committed mortgage fraud.

4:54And he's found three so far. Adam Schiff, the Democratic senator from California, Letitia James, the attorney general of New York, and now Lisa Cook. Have there been any charges in the Lisa Cook case or any evidence presented? There hasn't been any charges or evidence presented publicly. The FHFA forwarded documents to the Justice Department and asked them to investigate. And the Justice Department said last week that it would begin an investigation. But they have not been presented publicly. And so there is no public evidence that she did anything wrong yet. And I mean, if these allegations prove to be true, is what Lisa Cook is accused of a fireable offense?

5:34Well, that's an open question, because under the law, the Federal Reserve Act says the president can remove a Fed governor for cause. But cause is generally considered inefficiency, neglect of duty or malfeasance in office. And these took place before she was nominated to the Fed. So we don't know if it reaches the bar of for cause and gives the president the right to fire her. That's something that the courts will have to adjudicate. But it does reflect badly on the Fed. And so it may be that if she were guilty of something, they would essentially pressure her to leave. But we don't know yet.

6:15That's a long way down the road. Cook's lawyer says they'll challenge the firing in court. What has Cook said about all this? Cook has said very little when the charges were first made by the president. She said that she would not be bullied into resigning. And then in response to the letter from the White House last night, her attorney put out a statement from her saying that his demands lack any proper process, basis or legal authority and will take whatever actions are needed to prevent this attempted illegal action. I want to step back for a second and just learn a little bit more about Lisa Cook.

6:53Who is she and what has defined her career? Well, she is an academic who has spent a lot of time working on labor market issues, economic growth, financial systems, and innovation policy. Also, she's focused on race-related economic issues. She's the first Black woman ever appointed to the Fed board. She was a regular fixture at Jackson Hole and places like that. and was nominated in 2022 by President Biden to the seat, re-nominated in 2024. And she came from Michigan State University to the Fed and has been there now for a little over two years with a term that doesn't expire until 2038. Given the Trump administration's stance on race and equity-related issues, has Lisa Cook's research background and her race being a Black woman made her more of a target for this administration?

7:47There are going to be people that say that, given the administration's actions in the past. We don't know for sure what exactly motivates Trump in this case, but it's more likely that she was a target of opportunity. The FHFA found this discrepancy in her mortgage documents, and the president wants to get rid of people who are on the Fed so he could put his own people in there and maybe push them to drive down interest rates much farther. And so she just happened to fall in his lap as somebody he could try to fire. Does Trump actually have the power to remove Cook? What does the law say about it?

8:25What does the Supreme Court say about it? What does the Fed say about it? Well, the law says that you can fire a governor only for cause. The question is, what is cause? And we have some previous precedents that say it's basically conduct in office that is detrimental to the performance of your duties. And so that would have to be proven in court. There would probably have to be a court judgment that she had broken the law, even if it didn't matter that she wasn't in office at the time. So it's not clear the president can actually fire her. The Supreme Court said in a case in May involving a couple of other administration officials who were fired by the president, that the Fed has this special carve out, that they aren't necessarily able to be fired at will, that the president has to respect the cause issue.

9:11So that gives them a little bit of extra protection. After the break, what the Fed has said about President Trump's efforts to fire Lisa Cook and what the president's threat means for the central bank as an institution.

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11:38Federal Reserve Governor Lisa Cook is ready to go to court to challenge Trump's efforts to remove her. But there are also other players who could step in to defend her, like Federal Reserve Chair Jerome Powell and the Fed itself. Bloomberg's Michael McKee told me, so far, they've been staying out of it. The Fed has not commented on this. The problem for the Fed is that they don't have the information either. They haven't got the mortgage documents. They don't know what the issues are. They don't know if she broke the law. They don't want to throw her overboard, but they also don't want to endorse illegal conduct if that were the case.

12:14So they're going to stay out of it as much as possible. I feel like we say this so much reporting on the Trump administration, but has anything like this happened before? Nothing like this has ever happened before in the 112-year history of the Fed. No governor has been fired by a president. Closest situation we have was Vice Chair Richard Clarida. When he was coming to the end of his term, There was during COVID an issue with him. What he said he did was rebalance his stock portfolio, but others said he was trying to profit from inside information. And what he ended up doing was resigning from the Fed a couple of months early.

12:51But that's the closest parallel you have at all. At a high level, what does Trump want out of this? Why fire Lisa Cook? Well, at bottom, he's looking for lower interest rates. He has said that interest rates should be 300 basis points lower, somewhere around 1%. The Fed thinks that's a ridiculous idea, that they might lower interest rates, but maybe 25 to 50 basis points this year. And that's all. So he's got a bone to pick with the Fed because the higher interest rates make his budget cost a lot more. The deficit will rise because we have to pay more in interest payments. Also, Trump wants to control everything that he can.

13:33And by getting rid of Lisa Cook, if he puts a fourth person on the board, two in the first term and two in this term, then he would have a majority of the seven-member board. And the tinfoil conspiracy hat theory is that Fed bank presidents, there are 12 of them. And if Trump had managed to take control of the board and if everyone went along that he appointed, he could have all those people fired, too, and try to influence the selection of new Fed bank presidents. The administration doesn't select them. They're selected by local boards. And Trump would probably put pressure on those local boards to appoint people who were sympathetic to his views.

14:12Right. Well, it's interesting. It could be a tinfoil hat theory. But former Federal Reserve Vice Chair Lil Brainerd was on Bloomberg TV earlier today, and she raised those concerns that multiple Fed district bank presidents could be removed from office by Trump's Fed board picks next year. Any member of the board, presumably, is going to worry that they too could be subject to this kind of political pressure. And that fundamentally undermines the institutional independence of the Fed, which means higher inflation potentially. Can you walk us through what this move could mean for the rest of the central bank as an institution?

14:52And what did you make of those concerns that she raised? Does it add credence to this theory? It would add credence to it. I think the thing that most people are looking at is all of these theories and the idea of firing Federal Reserve governors were considered fringe ideas, and now they're happening. So you can never discount anything with Donald Trump. The problem for the Fed, there are 19 members on the Open Market Committee, which sets interest rates. Twelve of them voted at a time, all seven governors and five rotating regional Fed bank presidents. So if you change the rotating Fed bank presidents, you could get enough out of the 12 to get a majority and push interest rates down.

15:34This is bringing us to sort of the central question behind all of this, which is the independence of the Fed. Can you explain to us again why is having an independent Fed so important and what happens to the U.S. economy and to the public if that independence is challenged? Independence is grounded in the idea that if you are not subject to political pressure, you're making decisions on interest rates in the best interest of the economy. What is the economy telling you you need to do? Do you need to raise rates because inflation is rising? Do you need to cut rates because the economy is tanking?

16:10You react to what is important. In this case, it would be the president wants lower interest rates for his own reasons and not for the good of the economy. And so that would have a tremendous impact on the way people felt about the Fed. And it would probably lead to higher inflation. And the Fed, if it couldn't live up to its promise to bring down inflation, then what happens is inflation expectations become unmoored. You start to think, well, things are going to cost more tomorrow and the Fed's not going to stop that. So maybe I'm not going to buy or maybe I'm going to try to buy everything today.

16:46And the economy starts to really contract under those circumstances.

16:59This is The Big Take from Bloomberg News. I'm Sarah Holder. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you liked this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

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