The Federal Reserve said it "will continue to carry out its duties as established by law" the day after Donald Trump moved to fire board Governor Lisa Cook.
In a letter posted on Truth Social late Monday, Trump said he had “sufficient cause” to remove Cook: allegations that she made false statements on at least one mortgage loan by claiming two properties as her primary residence.
Cook, the first Black woman to serve on the Fed board in Washington, D.C., refuses to step down and has threatened to file suit: “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so,” she said in an emailed statement. “I will not resign.”
Then-President Joe Biden appointed Cook in 2022. Removing her would give Trump the opportunity to secure a four-person majority on the Fed’s seven-member Board of Governors at a time when he has ratcheted up the pressure to reduce rates.
Trump’s latest move, which triggered a rise in long-dated U. S. Treasuries during trading Tuesday, comes as the president narrows his list of potential successors to Fed Chair Jerome Powell, whose term ends in May 2026.
A spokesperson for the Federal Reserve told Homes.com in a statement that the board "will continue to carry out its duties as established by law."
"Congress, through the Federal Reserve Act, directs that governors serve in long, fixed terms and may be removed by the president only 'for cause.' Long tenures and removal protections for governors serve as a vital safeguard, ensuring that monetary policy decisions are based on data, economic analysis, and the long-term interests of the American people," the statement said.
Cook threatens suit
Cook's lawyer plans to challenge Trump's action: “President Trump has no authority to remove Federal Reserve Governor Lisa Cook,” Abbe Lowell said in a statement. “His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis. We will be filing a lawsuit challenging this illegal action.”
Once the case is challenged in court, it would then progress through the appellate courts and potentially reach the Supreme Court if Trump decides to pursue it further, explained Nicholas Creel, an associate professor of business law at Georgia College and State University. “In the meantime, Cook will be able to continue serving in the role by court order until the Supreme Court issues a final decision.”
The Federal Reserve spokesperson said the board will abide by any court decision.
To be sure, Congress has restricted the president’s authority to fire a Fed governor unilaterally in the Federal Reserve Act of 1913, which states that the president can do so only “for cause.” But the law doesn’t elaborate on what “cause” constitutes. It has traditionally been interpreted as misconduct or neglect of duty.
Bill Pulte, Trump's director of the Federal Housing Finance Agency, alleged last week that Cook had claimed two properties as her primary residence — in Ann Arbor, Michigan, and Atlanta — in 2021 to get favorable mortgage terms. Mortgage rates are typically higher on second homes.
In the letter to Cook, the president argues that the public needs a Fed official to act with integrity.
“The American people must be able to have full confidence in the honesty of the members entrusted with setting policy and overseeing the Federal Reserve,” Trump wrote in the letter he sent to Cook on Monday. “In light of your deceitful and potentially criminal conduct in a financial matter, they cannot and I do not have such confidence in your integrity.”
Central bank under fire
The central bank has been facing enormous pressure to cut interest rates to stimulate the economy and make it less expensive for the government to finance its debts.
President Trump has repeatedly criticized Powell for not cutting interest rates, and Pulte has demanded Powell’s resignation amid a stalled housing market.
Last week, Powell hinted at an interest rate cut in September, which could boost the housing market. While the Fed doesn’t set mortgage rates, its actions influence their direction. Lenders set mortgage rates based on 10-year Treasury bonds. To be sure, a rate cut doesn’t guarantee further declines in mortgage rates. In December 2024, the Fed cut rates, but mortgage costs remained elevated.
Mortgage rates averaged 6.58% as of last Thursday, unchanged from the prior week, according to mortgage giant Freddie Mac.
On Tuesday, Trump said at a Cabinet meeting he will soon have a majority of his own nominees on the Fed board as he continues to push for lower interest rates.
“Once we have a majority, housing is going to swing, and it’s going to be great,” he said. “People are paying too high an interest rate. That’s the only problem with us. We have to get the rates down a little bit.”
Powell, however, has made it clear that the Federal Reserve would not be swayed by politics. "Monetary policy is not on a preset course," he said last week. Fed committee "members will make decisions based solely on their assessment of the data and its implications for the economic outlook and the balance of risks. We will never deviate from that approach."
Amid elevated home prices and high interest rates, buyer demand has cooled, Erika Ludvigsen, national director of residential analytics at Homes.com, said in an interview last week. Data from Homes.com showed that the number of active listings surged 26% in July compared to the same time last year, a sign that a housing market reset could be on the way. There were more than 1.4 million houses for sale, reaching the largest monthly supply since 2017. Meanwhile, the median home price increased $8,000 to $393,000 last month.
Christine Cooper, CoStar's chief U.S. economist, said "even small downward movements in mortgage rates are likely to unlock inventories of homes held by homeowners locked into lower-rate mortgages, as the share of mortgages with rates above 6% has risen to almost 20%."
"More inventory of homes for sale should continue to ease the upward pressure on home prices, which, together with lower lending rates, should improve affordability, offering relief to would-be buyers who have been locked out of the housing market," the economist added.