US president Donald Trump is seeking to influence central bank policy after repeatedly criticising chair Jerome Powell for not cutting the short-term interest rate.
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Federal Reserve governor Lisa Cook said late on Wednesday that she wouldn't leave her post after Trump called for her resignation on social media, linked to an accusation from one of his officials that she committed mortgage fraud.
“I have no intention of being bullied to step down from my position because of some questions raised in a tweet,” Cook said in a statement issued by the Fed.
Bill Pulte, a Trump appointee and the head of the agency that regulates mortgage giants Fannie Mae and Freddie Mac, alleged on the X social media platform early on Wednesday that Cook had claimed two primary residences in 2021 to get better mortgage terms. Mortgage rates are often higher on second homes or those purchased to rent.
Trump followed up Pulte's accusation by calling on Cook to resign, the latest effort by the administration to exert greater control over one of the few remaining independent agencies in Washington.
Pulte's accusations
Trump has repeatedly attacked the Fed's chair, Jerome Powell, for not cutting its short-term interest rate, and even threatened to fire him.
If Cook is forced off the Fed's governing board, it would provide Trump an opportunity to appoint a loyalist. Trump has said he would only appoint officials who would support cutting rates.
Pulte urged the Justice Department to investigate Cook, who was appointed to the Fed’s governing board by former president Joe Biden in 2022. She was reappointed the following year to a term that lasts until 2038, the longest remaining term among the seven governors.
Cook also 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.”
Pulte, in a letter to Attorney General Pam Bondi, said that on 18 June 2021, Cook purchased a home in Ann Arbor in Michigan and then two weeks later bought an apartment in Atlanta. Before joining the Fed, Cook taught at Michigan State University. Pulte also accused Cook of listing her apartment in Atlanta for rent.
A Justice Department spokesperson declined to comment.
The Fed's independence
Just last month, Trump criticised Powell for the ballooning cost of renovating two of the Fed’s headquarters buildings, even suggesting that the rising costs could constitute a firing offense. He stepped back his threats to fire Powell after receiving a tour of the project.
Pulte also suggested that Cook's alleged actions could constitute a fireable offence. Fed officials are protected by law from being removed by a president, except “for cause”, which is generally seen as some kind of wrongdoing or dereliction of duty.
Either way, if Trump seeks to fire Cook, it could lead to a court battle over a president's power to remove Fed governors.
Senate Democrats, including New York senator Chuck Schumer, expressed support for Cook and slammed Trump's actions.
“Trump is a liar. Lisa Cook — stand tough and don’t let Trump intimidate you," Schumer wrote in a post on social media platform X.
Massachusetts Senator Elizabeth Warren said in a statement that Trump “has been scrambling for a pretext to intimidate or fire chair Powell and members of the Federal Reserve Board while blaming anyone but himself for how his failed economic policies are hurting Americans”.
Trump will be able to replace chair Jerome Powell in May 2026, when Powell's term expires. Yet 12 members of the Fed's interest-rate setting committee have a vote on whether to raise or lower interest rates, so even replacing the chair doesn't guarantee that Fed policy will shift the way Trump wants.
But the more members of the Fed’s governing board that Trump can appoint, the more control he will be able to assert over the Fed, which has long been considered independent from day-to-day politics.
Interest rate decisions
All seven members of the Fed's governing board are able to vote on rate decisions. The other five voters include the president of the Fed's New York branch and a rotating group of four of the presidents of the Fed's other 11 regional branches.
Trump appointed two members of the Fed's board in his first term, Christopher Waller and Michelle Bowman. Both dissented on 30 July from the central bank's decision to keep its rate unchanged, in favour of a rate cut.
Another Fed governor, Adriana Kugler, stepped down unexpectedly on 1 August, and Trump has nominated one of his economic advisers, Stephen Miran, to fill out the remainder of her term until January.
If Trump is able to replace Cook, the first Black woman to serve on the Fed's board, as well as Kugler, that would give him a clear majority on the board of governors. If Powell leaves the board when his term as chair ends next May, then Trump will be able to fill a fifth spot. However, Powell could stay on the board until early 2028 after finishing his term as chair.
The presidents of the regional Federal Reserve banks are selected by the boards of directors of those banks, but are subject to the approval of the Fed’s board of governors. The terms of all 12 of the regional Fed presidents end next February.
Trump has for months demanded that the Federal Reserve reduce the short-term interest rate it controls, which currently stands at about 4.3%. He has also repeatedly insulted Powell, who has said that the Fed would like to see more evidence of how the economy evolves in response to Trump's sweeping tariffs before making any moves. Powell has also said the duties threaten to raise inflation and slow growth.
Trump says that a lower rate would reduce the government's borrowing costs on $37 trillion (€31.8tn) in debt and boost the housing market by reducing mortgage rates. Yet mortgage borrowing costs and other interest rates, including many of the ones the government pays, do not always follow the Fed's rate decisions.
The Trump administration has made similar claims of mortgage fraud against Democrats that Trump has attacked, including California senator Adam Schiff and New York attorney general Letitia James.