NEW YORK/WASHINGTON — President Donald Trump has taken his feud with the Federal Reserve to an unprecedented extreme with his effort to fire Governor Lisa Cook, kicking off what could be a protracted legal battle that risks resetting long-established norms for the central bank’s independence and a president’s involvement in monetary policy.

Long feared as a move that would tip global financial markets into disarray, Trump’s announcement late Monday that he would remove Cook immediately over questions raised over mortgages she took out before she joined the Fed was met with a muted response on Tuesday.

Wall Street’s main indexes opened slightly lower, while bond yields reflected higher expectations for a near-term Fed rate cut and also a bit less confidence in the central bank’s inflation-fighting credentials. But asset moves so far showed little indication of outright panic.

Trump said in a letter to Cook, the first African-American woman to serve on the Federal Reserve’s governing body, that he had “sufficient cause to remove you from your position” because in 2021 she had indicated on documents for separate mortgage loans on properties in Michigan and Georgia that both were a primary residence where she intended to live.

Cook responded several hours later in a statement emailed to reporters through the law office of Abbe Lowell, saying of Trump that “no causes exist under the law, and he has no authority” to remove her from the job she was appointed to by former U.S. President Joe Biden in 2022. “I will continue to carry out my duties to help the American economy.”

Lowell said that Trump’s “demands lack any proper process, basis or legal authority. We will take whatever actions are needed to prevent this attempted illegal action.”

Since taking office in January, Trump has fired several Black women who held senior government positions, including the head of the Library of Congress and the chair of the National Labor Relations Board.

The Trump administration has also targeted other political opponents with similar accusations of mortgage fraud, including New York Attorney General Letitia James, a Black woman who secured a half-billion-dollar civil fraud judgment against Trump last year. A New York appeals court threw out the penalty last week, while preserving the case.

Mortgage Questions

Questions about Cook’s mortgages were first raised last week by U.S. Federal Housing Finance Agency director William Pulte, who referred the matter to Attorney General Pamela Bondi for investigation.

Though the terms of Fed governors are structured so they outlast the term of a given president, with Cook’s term lasting until 2038, the Federal Reserve Act does allow removal of a sitting governor “for cause.”

That has never been tested by presidents who, particularly since the 1970s, largely have taken a hands-off approach to Fed matters as a way to ensure confidence in U.S. monetary policy.

Legal scholars and historians said the thicket of issues that could be raised in a legal challenge would span questions around executive power, the Fed’s unique quasi-private nature and history, as well as whether anything Cook did amounted to cause for removal.

Peter Conti-Brown, a scholar of the Fed’s history at the University of Pennsylvania, noted that the mortgage transactions preceded her appointment to the Fed, and were in the public record when she was vetted and confirmed by the Senate.

“These officials have been vetted by our President and our Senate. That means that all things that they had done during their times as a private citizen were already vetted,” Conti-Brown said.

“So the idea that you can then reach back, turn the clock backward and say, you know, all these things that have happened before now constitute fireable offenses from your official position is to me incongruous with the entire concept of ‘for cause’ removal,” Conti-Brown said.

Trump in the letter accused Cook of having “deceitful and criminal conduct in a financial matter” and said he did not have confidence in her “integrity.”

“At a minimum, the conduct at issue exhibits the sort of negligence in financial transactions that calls into question your competence and trustworthiness as a financial regulator,” he said, claiming authority to fire Cook under Article 2 of the U.S. Constitution and the Federal Reserve Act of 1913.

Road Ahead

It is unclear how the matter might play out from here, with Trump saying the firing was “effective immediately,” and the Fed set to hold a policy meeting on September 16-17.

Trump’s move was greeted with a steepening U.S. Treasury yield curve as yields on 2-year notes – sensitive to near-term Fed policy expectations – quickly fell while yields on longer-dated 10-year notes – sensitive to inflation risks – moved higher.

The reaction reflects expectations that the Fed policy rate may drop but at the expense of its commitment to thwart inflation.

U.S. stocks opened slightly lower, with the Dow Jones Industrial Average .DJI down 0.10%, the S&P 500 .SPX down 0.06%, and the Nasdaq Composite .IXIC down 0.03%.

The dollar weakened.

Academic research has consistently found that policymakers allowed to manage inflation independent of political meddling generally achieve better outcomes, a principle that may now be tested at the world’s most influential central bank.

“It speaks to the determination of this administration to remake the Federal Reserve and serves as a warning to the other Biden appointees. The Fed as an institution escaped harm in the first Trump administration, and will not be so fortunate this time around,” SGH Macro Advisors’ Tim Duy said.

“It’s another reason to believe … that rates will be lower than would otherwise be the case,” Duy said.

Pressure Campaign

Trump has repeatedly berated Powell over not lowering interest rates, though he has halted threats to fire him from a term that ends in about nine months anyway.

Cook’s departure would allow Trump to select his fourth pick to the Fed’s seven-member board, including two incumbents and the pending nomination of Council of Economic Advisers chief Stephen Miran to a currently open seat.

Cook took out the mortgages in question in 2021 when she was an academic. An official financial disclosure form for 2024 lists three mortgages held by Cook, with two listed as personal residences. Loans for primary residences can carry lower rates than mortgages on investment properties, which are considered riskier by banks.

The claims against Cook coincide with a broad effort by the Trump administration against diversity, equity and inclusion programs in the U.S. government, a process that has led to the departure of some prominent women and minorities.

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(Reporting by Michael S. Derby; Additional Reporting by Nicole Jeanine Johnson and Kanishka Singh; Writing by Andy Sullivan; Editing by Paul Simao, Caitlin Webber, Lincoln Feast, Michael Perry, Mark Porter and Andrea Ricci)