Is It Legal for Donald Trump to Fire Fed Governor Lisa Cook?

The Supreme Court has forewarned President Donald Trump that it won’t let him fire members of the Federal Reserve Board of Governors for any reason he sees fit. But he’ll likely succeed in his overtly political effort to remove Lisa Cook from her post.

Trump’s motivation is plain: He wants to kick Cook off the Fed so he can install a loyalist who will lower interest rates. Just hours after he moved to terminate Cook, Trump boasted, “We’ll have a majority very shortly. So that’ll be great … We have to get the rates down a little bit.”

Enter Bill Pulte, the rabid loyalist who has donated over $1 million to Trump’s political operations and now heads the Federal Housing Finance Agency. In August, Pulte sent a letter to AG Pam Bondi and her clueless, hyperpartisan attack dog, Ed Martin, accusing Cook of mortgage fraud — one in a series of splashy criminal referrals from this obscure regulatory agency. On Thursday, The Wall Street Journal reported that the DOJ has opened a criminal investigation into Cook based on Pulte’s referral.

At some point, we’ll learn who is giving Pulte his marching orders and why he seemingly has focused exclusively on high-profile Democrats, but not Republicans. On its face, Pulte’s use of his regulatory powers to scrounge for dirt evokes the IRS targeting scandal that rocked the Obama administration in the mid-2010s (though there was nothing in that case to tie Obama himself to the effort).

But political motives matter little, if at all, under the law that governs Cook’s tenure with the Fed. The Federal Reserve Act, which established the agency itself in 1913, empowers the president to remove Fed governors “for cause.” District Court Judge Jia Cobb, a Biden appointee presiding over Cook’s wrongful termination lawsuit, appeared to conclude that the president’s underlying motivation is immaterial. When Cook’s lawyer, Abbe Lowell, argued in court last week that Trump had actually fired her because he wants the Fed to lower interest rates, Cobb was unmoved: “I’m unconformable with the pretext argument,” she said.

So, bad-faith motives aside, does Trump have sufficient cause to fire Cook? Pulte’s first referral letter to the DOJ alleges that, within a two-week period in 2021, Cook obtained a mortgage on a home in Michigan that she claimed was her “principal residence” — and then a second mortgage on a home in Georgia that she claimed as a “primary residence.” Pulte further alleges that Cook promptly placed the second property up for rent, contrary to her “primary residence” claim. (Generally, principal and primary residences are eligible for better mortgage interest rates and tax benefits unavailable to secondary homes or rental properties.)

And in a follow-up letter, Pulte accused Cook of obtaining a third mortgage in Massachusetts and claiming that property would be a “second home.” However, in subsequent tax filings, she indicated that that home was an “investment/rental property.” Pulte notes that “second homes receive lower mortgage costs than rental properties, because investment properties are inherently riskier.”

There’s plenty we don’t know. Maybe there’s some innocuous explanation for how Cook could have simultaneously occupied a principal residence, a primary residence, and a secondary residence — and why she rented out the latter two properties, contrary to the representations in her mortgage paperwork. And now Cook must deal not only with a fight to reclaim her job with the Fed, but also a pending criminal inquiry that could land her in a defendant’s seat in federal court. (The burden of proof is, of course, far higher in the criminal setting than in the employment context.)

Thus far, Cook’s legal team has been conspicuously noncommittal. In a formal complaint and court appearance last week, Lowell suggested that her conduct might have been unintentional, or the result of “clerical error.” And in a filing this week, Lowell argued in a footnote that, even if some of Cook’s cited statements present “facial contradictions,” she has properly designated each of the properties in other official disclosures. But it’s tough to credit a claim that Cook was baffled by routine mortgage paperwork, given her status as one of the country’s most accomplished economic minds.

Cook’s attorneys also note that the mortgage transactions at issue predated her tenure with the Fed by about a year. But that’s a shaky limb. If she did commit fraud shortly before she joined the Fed, that would undermine her public standing as a Fed governor, charged with making enormously consequential decisions about the nation’s economy. And if Cook did engage in fraud as alleged, then she continued to reap financial benefits (lower interest rates, more favorable taxes) throughout her tenure with the Fed.

The outlook for Cook is bleak. She might win temporarily on some procedural basis in the lower courts — her attorneys note that she wasn’t given notice of the firing or a chance to contest it — but ultimately, I see two reasons why the judiciary is likely to side with Trump on the cause issue.

First, even if a president’s finding of cause can be reviewed by the courts, the president is due some deference. As Judge Cobb noted, “Deferential doesn’t mean that there’s no probing of it. You just assume good faith, you defer.” In other words, while a judge can examine the president’s “for cause” finding, she can’t simply reverse the president if she happens to disagree. Rather, the courts must uphold the president’s determination, absent some glaring error. As the record currently stands, the mortgage-fraud allegations against Cook haven’t been proven conclusively — but they’re substantial on their face. Cook has offered no compelling defense to this point, and the courts can’t just invent one and superimpose it on their own.

Second, if the courts uphold Trump’s finding of cause, they’ll spare themselves from having to render a controversial opinion on the scope of the president’s powers over the Fed. And you’ll never go broke betting on the courts to take a convenient constitutional off-ramp.

If Trump had sufficient cause for the firing, then the case ends without a constitutional reckoning over the relationship between the president and the Fed. But if the courts find that Trump lacked cause to terminate Cook, he surely will argue next that the Federal Reserve Act itself is unconstitutional because Congress has no power to limit presidential personnel decisions within the executive branch that he was duly elected to lead.

The good news for Trump, if it comes to this, is that the Supreme Court has already embraced an expansive view of executive authority, all but reversing a 90-year-old precedent that permitted Congress to limit the president’s power to fire leaders of certain executive-branch agencies. But the Court went out of its way in that decision to proclaim that the Fed is fundamentally different: “Respondents … contend that arguments in this case necessarily implicate the constitutionality of for-cause removal protections for members of the Federal Reserve’s Board of Governors … We disagree. The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.” In other words: Do what you will with the National Labor Relations Board and the Merit Systems Protection Board, but leave the Fed alone.

Don’t expect it to come to that. It’s more likely the courts will simply defer to and uphold Trump’s finding of cause for Cook’s firing and never have to grapple with the stickier issues of the presidency versus the Fed and executive versus legislative power.

Trump has ugly retributive motivations for his attempt to remove Cook. But once again, he reminds us that not everything ill intended and ill conceived is illegal.