(Kitco News) – President Donald Trump’s Monday evening announcement that he intends to fire Federal Reserve Governor Lisa Cook from her position is the most significant escalation of his attacks on the central bank’s independence, and it has provoked a strong reaction from Democrats and the markets – and a renewed bid for gold prices.
Trump posted a ‘termination letter’ to Cook on his Truth Social platform, referring to allegations that she made false statements on two mortgage applications in 2021, before she was appointed to the Federal Reserve.
“In light of your deceitful and potentially criminal conduct in a financial matter, [the American people] cannot and I do not have such confidence in your integrity,” Trump wrote in the letter. “At a minimum, the conduct that issue exhibits the sort of gross negligence in financial transactions that calls into question your competence and trustworthiness as a financial regulator.”
Cook is the first Black woman to serve as a governor of the Federal Reserve. Her removal is likely to be challenged in federal courts, and could ultimately require a Supreme Court ruling.
The Federal Reserve Act of 1913 limits the executive’s authority to unilaterally fire a Fed governor, stating that the president can only do so “for cause,” which has historically been understood to mean malfeasance or dereliction of duty.
If Trump succeeds in removing Cook, he will be able to nominate her replacement and reshape the Fed’s seven-member governing board for many years, as Fed governors typically serve 14-year terms. There are currently six members on the Board of Directors, including Cook, with one seat vacant after Adriana Kugler resigned her position on August 8.
Two of the current Fed governors, Christopher Waller and Michelle Bowman, are Trump appointees from his first term, and Trump also nominated Powell to be the Chair of the Federal Reserve in 2017.
Trump has already nominated Stephen Miran, chair of the Council of Economic Advisors, to fill Kugler’s seat. If Miran is confirmed by the Senate – and if Trump’s removal of Cook stands and her replacement is ultimately confirmed – this would give Trump appointees a 4-3 majority on the Fed’s board.
Senior Democrats were quick to condemn the president’s announcement. Elizabeth Warren, the ranking Democrat on the Senate Banking Committee, called Trump’s announcement of Cook’s firing an “authoritarian power grab that blatantly violates the Federal Reserve Act, and must be overturned in court.”
Senate minority leader Chuck Schumer said Trump was playing “a dangerous game of Jenga with a key pillar of our economy.” Schumer said that by attempting to remove Cook and install his own replacement, Trump would “shred” the Fed’s independence and put “every American’s savings and mortgage at risk.”
Jamie Cox, Managing Partner for Harris Financial Group, told Kitco News that Trump’s direct interference at the highest levels of the Federal Reserve and his administration’s direct investments in private businesses are severe shocks to the economic system.
“I'm not sure which is more unsettling – the government upending Federal Reserve independence or taking large stakes in private businesses,” he said. “The US took stakes in large banks during the global financial crisis, and the stocks were dead for 10 years, so caution is warranted for any company that cedes a stake to the government right now.”
“The President is going to remake the Board of Governors of the Federal Reserve over the next year, and he's doing so in very unconventional ways – we've had a resignation and now a termination, opening the door to accelerate this change,” Cox added. “Trump has essentially usurped the Fed's forward guidance function for the time being and is telling markets lower rates are coming, which is being manifest in a steeper yield curve, with short-term treasuries dropping like a rock.”
Gold prices also caught a bid in the wake of the announcement, with spot gold shooting from $3,351 per ounce just before 8 pm EDT on Monday evening to $3,385 just one hour later.
Spot gold continues to hold at elevated levels on Tuesday, last trading at $3,383.66 per ounce for a gain of 0.53% on the session.
