Fed’s Lisa Cook sues Trump after attempted ouster, lawyer suggests ‘clerical error’ behind mortgage flap

Lisa Cook, a governor on the Federal Reserve Board, sued President Trump, the Board of Governors of the Federal Reserve System, and Fed Chair Jerome Powell on Thursday, alleging that the president’s move to fire her violated his executive authority and illegally deprived her of her due process right to respond to accusations that she committed mortgage fraud.

The high-stakes case poses a test for how much influence a US president can exert over the nation’s monetary policy.

Cook, 61, asked the District of Columbia’s federal district court for an injunction immediately confirming her status as an active member of the Board of Governors and to make a series of declarations to “safeguard her and the Board’s congressionally mandated independence.”

A hearing on Cook’s request for an injunction is scheduled on Friday at 10 a.m. ET before US District Court Judge Jia Cobb, an appointee of President Biden.

“The president’s actions violate Governor Cook’s Fifth Amendment due process rights and her statutory right to notice and a hearing under the Federal Reserve Act,” the six-count complaint stated.

The lawsuit’s actions against the Board and Chair Powell, it said, were limited to the extent that any individual Fed Governor is able to “effectuate” the president’s attempted termination.

Cook has refused to resign from her post in the wake of a termination letter signed by the president that was made public on Monday. Trump’s letter asserts his authority to fire the Fed governor “for cause,” based on the White House’s allegations that Cook misrepresented two different homes on mortgage applications as her primary residence.

Cook said in her lawsuit and in a request for an emergency hearing on Thursday that “for cause” justification for her termination did not exist.

“Cause” for removal, the filings said, should depend on when the alleged misconduct occurred, whether it occurred in the performance of official duties, and the seriousness of the offense.

“None of the alleged misconduct occurred during the performance of Governor Cook’s duties as a Federal Board member,” Cook’s lawyer, Abbe Lowell, said in a request for an emergency hearing.

Lowell indirectly described Cook’s mortgage representations as a “clerical error” and said the White House failed to explain how the representations benefitted Cook.

“Even if Governor Cook had committed the infractions that the President alleges — which she did not — the President would lack ’cause’ to remove her,” the document said.

Read more: How much control does the president have over the Fed and interest rates?

Cook’s clash with the administration adds to a list of similar legal actions that challenge the president’s authority to fire executive branch members.

Cook’s lawsuit, the most high-profile litigation to date, was filed in the District of Columbia’s federal district court.

Her claim tests the central bank’s degree of independence from executive branch influence, a legal gray area that has attracted the Supreme Court’s attention, though it has not been squarely addressed.

In a decision earlier this year, the high court singled out the Federal Reserve by essentially describing it as more independent than other executive branch agencies that are also classified as independent.

In that case, Trump v. Wilcox, the court expanded the president’s authority over two independent agencies, the National Labor Relations Board (NLRB) and the Merit Systems Protection Board (MSPB), by allowing him to terminate officials at both agencies, while distinguishing the agencies from the Federal Reserve.

Lisa Cook’s lawyer, Abbe Lowell, in Wilmington, Del., last year. (AP Photo/Matt Rourke, File) · ASSOCIATED PRESS

Unlike the NLRB and MSPB, the court said, the Fed is “a uniquely structured, quasi-private entity” with a distinct historical tradition rooted in the collapse of its central bank predecessors.

All three executive branch agencies operate independently of direct presidential oversight, and their officials are protected by statutes that limit the president’s power to remove them from their posts.

However, the court’s reference to the Fed’s predecessors, the First and Second Banks of the United States, highlights that both banks failed due to a loss of the public’s trust that was fueled by political abuses, including favoritism for connected elites and foreign influencers.

The court’s characterization of the Fed is instructive but not conclusive as to how it would rule if it were to decide the central bank’s level of independence.

Won’t be bullied: Lisa Cook with Federal Reserve Chairman Jerome Powell during an open meeting of the Board of Governors at the Federal Reserve, June 25, 2025, in Washington. (AP Photo/Mark Schiefelbein, File) · ASSOCIATED PRESS

No president before Trump has attempted to fire a Fed member.

The only law containing text specifically referencing the removal of Fed board members is found in Section 10 of the Federal Reserve Act. The law states that each member of the board shall hold office for 14 years “unless sooner removed for cause by the President.”

The statute doesn’t specifically address what the phrase “for cause” means, but it has been interpreted in legal rulings to mean “inefficiency, neglect of duty, or malfeasance.”

That interpretation was first fashioned in the 1935 Supreme Court case Humphrey’s Executor v. United States, in which the court struck down President Franklin Roosevelt’s termination of a US Federal Trade commissioner. The Federal Trade Commission is also classified as an independent federal agency that operates within the executive branch.

Cook argued in her lawsuit that the court should apply the standard in Humphrey’s Executor to the Federal Reserve Act. The case, her lawsuit claims, clearly states that removal “for cause” requires “some connection to official conduct,” plus prohibits removal based on an “unsubstantiated allegation of private misconduct.”

“And even to the extent that private misconduct could bear on a particular officer’s official conduct in certain cases,” the suit said, ’cause’ requires a factual basis supporting that asserted misconduct.

Kevin Hassett, Director of the National Economic Council, told reporters on Wednesday that Cook’s decision to stay in her role amid the termination dispute cuts against the Fed’s independence. Hassett said Cook should go on leave until the White House’s accusations against her are resolved.

“The fact that she is not doing that suggests that she is partisan and is trying to make a partisan stance, which is contrary to the independence of the Fed,” Hassett said.

Absolute authority? Director of the White House National Economic Council Kevin Hassett speaks with reporters outside the White House, Wednesday, Aug. 27, 2025, in Washington. (AP Photo/Mark Schiefelbein) · ASSOCIATED PRESS

In June 2021, Cook purchased a home in Ann Arbor, Mich., using a mortgage application that designated the property as a primary residence. Cook purchased another property in Atlanta, Ga., two weeks later, using a mortgage application that also designated the property as a primary residence. The Georgia property was listed for rent the following year in September 2022.

Chester Spatt, a finance professor at Carnegie Mellon University and former chief economist and for the SEC’s Office of Economic Analysis, said the key issue now is whether the court will provide the injunction she requested that would allow her to remain in her position while the litigation continues.

“Then she’ll continue to vote on the on these monetary policy issues that seem to be the source of so much contention right now, and the president won’t be able to go forward with a new a new nominee,” Spatt said.

Cook’s seat is potentially much more important to the balance of the Fed than the recent resignation of Fed Governor Adriana Kugler, Spatt added, because Cook’s term extended until January 2038 whereas Kugler’s term was set to expire in January next year.

The president first sparked the question over the Fed’s level of independence months ago when he publicly mused about firing Federal Reserve Chair Jerome Powell. Critics describe Trump’s desire to fire Powell and Cook as politically motivated and harmful to the Fed’s independence.

Legal experts differ on views over whether mere allegations can constitute the type of “for cause” removal authority that the Federal Reserve Act grants the president. But, Hassett contended, “The president absolutely has the authority to fire a Fed governor for cause, and I think the accusations are serious.”

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.

Yahoo Finance’s Jennifer Schonberger contributed to this report.

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