WASHINGTON — A federal court ruled Tuesday that embattled Federal Reserve Governor Lisa Cook can remain in her position while she fights President Donald Trump’s efforts to fire her.
The ruling, which will almost certainly be appealed, is a blow to the Trump administration’s efforts to assert more control over the traditionally independent Fed, which sets short-term interest rates to achieve its congressionally mandated goals of stable prices and maximum employment. Congress has also sought to insulate the Fed from day-to-day politics.
U.S. District Judge Jia Cobb late Tuesday granted Cook’s request for a preliminary injunction blocking her firing while the dispute makes its way through the courts. Cobb ruled that Cook would likely prevail in the lawsuit she filed late last month to overturn her firing.
Trump said he was firing Cook on Aug. 25 over allegations raised by one of his appointees that she committed mortgage fraud related to two properties she purchased in 2021, before she joined the Fed. Cook is accused of saying two properties were “primary residences,” which could have resulted in lower down payments and mortgage rates than if either was designated a second home or investment property.
Cobb ruled that the allegations likely weren’t sufficient legal cause to fire her. Under the law governing the Fed, governors can only be removed “for cause,” which Cobb said was limited to actions taken during a governor’s time in office.
The “removal of a Federal Reserve Governor extends only to concerns about the Board member’s ability to effectively and faithfully execute their statutory duties, in light of events that have occurred while they are in office,” Cobb wrote. Cobb was appointed by former President Joe Biden.
“Allowing the President to unlawfully remove Governor Cook on unsubstantiated and vague allegations would endanger the stability of our financial system and undermine the rule of law,” Cook’s lawyer, Abbe Lowell, said in a written statement. “Governor Cook will continue to carry out her sworn duties as a Senate-confirmed Board Governor.”
The White House did not immediately comment.
Lowell also argued in court filings that Cook was entitled to a hearing and a chance to respond to the charges before being fired, but was not provided either. Her lawsuit denied the charges but did not provide more details.
The case could become a turning point for the 112-year-old Federal Reserve. Economists prefer independent central banks because they can do unpopular things like lifting interest rates to combat inflation more easily than elected officials.
Many economists worry that if the Fed falls under the control of the White House, it will keep its key interest rate lower than justified by economic fundamentals to satisfy Trump’s demands for cheaper borrowing. That could accelerate inflation and could also push up longer-term interest rates, such as those on mortgages and car loans. Investors may demand a higher yield to own bonds to offset greater inflation in the future, lifting borrowing costs for the U.S. government, and the entire economy.
If Trump can replace Cook, he may be able to gain a 4-3 majority on the Fed’s governing board. Trump appointed two board members during his first term and has nominated a key White House economic adviser, Stephen Miran, to replace Adriana Kugler, another Fed governor who stepped down unexpectedly Aug. 1. Trump has said he will only appoint people to the Fed who will support lower rates.
No president has sought to fire a Fed governor before.
Trump has repeatedly attacked Fed Chair Jerome Powell and the other members of the Fed’s interest-rate setting committee for not cutting the short-term interest rate they control more quickly. It currently stands at 4.3%, after Fed policymakers reduced it by a full percentage point late last year. Trump has said he thinks it should be as low as 1.3%, a level that no Fed official and few economists support.
Powell recently signaled that the central bank was leaning toward cutting its rate at its next meeting Sept. 16-17. Still, it’s likely that the Fed will cut its key rate more slowly than Trump wants, and perhaps to as low as 3.25% or so — higher than Trump would prefer.
Cook is the first Black woman to serve as a governor. She was a Marshall Scholar and received degrees from Oxford University and Spelman College, and prior to joining the board she taught at Michigan State University and Harvard University’s Kennedy School of Government.
AP writer Will Weissert contributed to this report.