For the first time in history, Trump "fires" a sitting Federal Reserve board member

Author: Zhu Xueying, Wall Street Journal

Trump just made a major move! He announced on social media that he was removing Federal Reserve Board Governor Lisa Cook from her position "effective immediately."

This unprecedented move shook the financial markets and sparked widespread doubts. U.S. stock index futures fell in response, with the Nasdaq 100 contract down 0.2%. Risk aversion pushed the yen higher against the dollar, while gold pared earlier losses. If Trump's move succeeds, he will be one step closer to controlling the Federal Reserve. Cook's departure would give Trump the potential to secure four seats, giving him a majority on the seven-member board. Trump appointed two of the current board members during his first term and recently nominated Stephen Miran, chairman of his Council of Economic Advisers, to fill the third seat recently vacated by Adriana Kugler, a Biden appointee. Wall Street Journal reporter Nick Timiraos, known as the "New Fed News Agency," analyzed in a recent article that Trump has already appointed two members to the seven-member Fed board. If he secures two more nominations, he will secure a majority, potentially fundamentally reshaping the entire Federal Reserve system. Timiraos also analyzed that if Trump secures a majority on the Federal Reserve Board by March of next year, he might refuse to reappoint regional Fed presidents, thereby gaining control of FOMC meetings. The "unprecedented" dismissal has shaken Wall Street. In his letter, Trump accused Cook of "fraudulent and potentially criminal conduct" in financial matters, saying such conduct has undermined his credibility as a regulator. Citing Article II of the U.S. Constitution and relevant provisions of the Federal Reserve Act of 1913, Trump stated that he had determined sufficient grounds to remove Cook. The letter referenced a criminal referral filed by the Federal Housing Finance Agency on August 15th, alleging that Cook made false statements in mortgage documents. For example, she first declared the property as her primary residence on a Michigan document and then made the same declaration on another in Georgia. Trump called the move "unthinkable," questioning his integrity and competence as a financial regulator. Trump's threat to fire Cook marks a significant escalation in the White House's pressure on the Federal Reserve. If Trump succeeds in removing Cook, it would set a precedent in American history—never before has a sitting Federal Reserve governor been fired by a president. Markets are concerned this could trigger a constitutional crisis and exacerbate market volatility. Previous political conflicts, including President Johnson's heated confrontation with Federal Reserve Chairman William McChesney Martin and President Nixon's pressure on Arthur Burns, did not result in actual dismissals. Claudia Sahm, chief economist at New Century Advisors and a former Federal Reserve economist, once said, "This is a new way for this administration to try to control the Federal Reserve, and they are using every means they can find to achieve this control." Does the president have the power to remove Federal Reserve board members? Yes, but there are prerequisites. Legal experts emphasize that the Federal Reserve Act clearly stipulates that board members "may be removed by the president for cause," but this requires solid evidence of misconduct, such as dereliction of duty, malfeasance, or inability to perform their duties, rather than political motivation. Although Bill Pulte, director of the Federal Housing Finance Agency (FHFA), previously accused Cook of lying on loan applications to obtain more favorable terms, suspected of mortgage fraud. However, the allegations against Cook have not yet been proven in court, and the Justice Department has only stated that it will investigate the allegations. Trump previously posted a photo of Cook marked with a red cross on his Truth Social social media platform, calling him a "fraud." Cook is the first Black woman to serve on the Federal Reserve Board and joined the Fed in 2022. Massachusetts Senator Elizabeth Warren condemned Trump's actions on social media as "illegal and politically motivated." Trump's "three-step approach" to controlling the Federal Reserve is gradually being implemented. Some analysts believe that if Cook leaves, Trump will have the opportunity to appoint a fourth Fed governor, securing a majority on the seven-member board. Trump appointed two of the current governors during his first term and recently nominated Stephen Miran, chairman of his Council of Economic Advisers, to fill the third seat recently vacated by Biden's appointee, Adriana Kugler. On August 24, Nick Timiraos, a Wall Street Journal reporter known as the "New Fed News Agency," analyzed in his latest article that Trump has already appointed two members to the seven-member Federal Reserve Board. If he wins two more nominations, he will gain a majority, which could fundamentally reshape the entire Federal Reserve system. Furthermore, Timiraos believes that if Trump secures a majority on the Federal Reserve Board before March of next year, they may refuse to reappoint regional Federal Reserve presidents. Firing chairmen who have performed their duties conscientiously would break decades of precedent and breach a critical firewall that has protected the Federal Reserve's independence since its founding in 1913.