Fed's Cook sues Trump over his attempt to fire her; court hearing set for Friday

By Daniel Wiessner

Aug 28 (Reuters) - Federal Reserve Governor Lisa Cook filed a lawsuit on Thursday claiming President Donald Trump has no power to remove her from office, setting up a legal battle that could challenge long-established norms for the U.S. central bank's independence.

The lawsuit said Trump violated a federal law allowing him to remove a Fed governor only "for cause" when the president took the unprecedented step on August 25 of announcing he would fire her. Trump has accused Cook of committing mortgage fraud in 2021, a year before she joined the central bank's governing body.

Cook also filed a motion for a temporary restraining order. It declares that Trump's effort to fire her is unlawful and seeks to bar the Fed from taking steps to remove her pending further litigation. A hearing on the motion is set for 10 a.m. EDT (1400 GMT) on Friday.

"Neither the type of 'offense' the President cited nor the threadbare evidence against Governor Cook would constitute 'cause' for removal even if the President's allegations were true - which they are not," the motion said.

"The President would not have 'cause' to remove a Federal Reserve Governor even if he possessed smoking-gun evidence that she jaywalked in college," Cook's lawyers wrote in the lawsuit.

The lawsuit also accused Trump of violating her right to due process under the U.S. Constitution by firing her without notice or a hearing.

The case was assigned to U.S. District Judge Jia Cobb, an appointee of former President Joe Biden, a Democrat.

It is likely headed to the Supreme Court, where a conservative majority has at least tentatively allowed Trump to fire officials from other agencies, though it recently signaled the Fed may qualify for a rare exception from direct control by the president.

Cook, in her lawsuit, noted that the court in a May order distinguished the Fed from other government agencies, citing its unique structure and "distinct historical tradition."

Concerns about the Fed's independence from the White House in setting monetary policy could have a ripple effect throughout the global economy. The U.S. dollar stumbled against other major currencies after Trump, a Republican, first said he would remove Cook. It was trading lower on Thursday as traders kept bets that the Fed would gradually cut interest rates starting next month.

A Fed spokesperson said on Tuesday, before the lawsuit was filed, that the central bank would abide by any court decision, and Trump said the same on Wednesday. White House spokesperson Kush Desai said on Thursday that Trump exercised "lawful authority" in removing Cook.

Appointed a Fed governor in 2022 by Biden, Cook is the first Black woman to serve in the position.

Trump earlier this year also fired Gwynne Wilcox, the first Black woman to sit on the National Labor Relations Board, which hears private-sector labor disputes. Trump also has dismissed a slew of officials from other agencies that have long been treated as independent from the White House.

PRESSURE CAMPAIGN

The law that created the Fed does not define "cause" or lay out any standard or procedures for removal. No president has ever removed a Fed board member, and the law has never been tested in court.

Several federal laws requiring the president to have cause before removing members of other agencies say that the term can include neglect of duty, malfeasance, and inefficiency. Those laws could be a guide for courts to determine if Trump had cause to fire Cook.

Questions about Cook's mortgages in Michigan and Georgia were first raised in August by William Pulte, a Trump appointee who is the director of the Federal Housing Finance Agency. Pulte referred the matter to Attorney General Pamela Bondi for investigation.

Cook took out those mortgages in 2021 when she was an academic. An official financial disclosure form for 2024 lists three mortgages held by Cook, with two listed as personal residences. Loans for primary residences can carry lower rates than mortgages on investment properties, which are considered riskier by banks. Cook's disclosure shows the rates she paid for her personal residences were higher than the national averages at the time.

Some experts have questioned whether transactions that preceded Cook's appointment to the Fed and were in the public record when she was vetted and confirmed by the U.S. Senate could amount to adequate cause to remove her.

The Trump administration could argue in response to the lawsuit that giving Fed governors any protections from removal violates the president's broad constitutional powers to control the executive branch, as it has in cases filed by other ex-officials.

In an August 25 letter to Cook, Trump accused her of having engaged in "deceitful and criminal conduct in a financial matter" and said he did not have confidence in her integrity.

Cook's departure would allow Trump to name an ally to the Fed's seven-member board. The Senate Banking Committee is expected next month to consider Trump's nomination of Stephen Miran, the head of the White House's Council of Economic Advisers, to fill the only current vacancy on the board, with an eye to rushing through approval to enable him to vote at the Fed's September 16-17 policy meeting.

The president has repeatedly berated Fed Chair Jerome Powell for not lowering rates and over his alleged mishandling of a multi-billion-dollar renovation project, though he has halted threats to remove Powell before his term as central bank chief ends in May. Cook, who remains in her job for now, has always voted in step with the majority of Fed governors.

The Trump administration has also targeted political opponents, including U.S. Senator Adam Schiff and New York Attorney General Letitia James, with similar accusations of mortgage fraud. Schiff and James have denied wrongdoing.