Legal Clash Threatens Federal Reserve Independence

(MENAFN- The Arabian Post)

Federal Reserve governor Lisa Cook has filed a lawsuit in Washington's federal district court challenging President Donald Trump's bid to remove her from the Fed's Board of Governors. The suit argues Trump lacked legal authority under the Federal Reserve Act to dismiss her“for cause,” citing mortgage‐fraud allegations tied to applications in 2021-claims she denies and which preceded her nomination and Senate confirmation in 2022. Cook also contends her constitutional right to due process was violated, as she received no advance warning or hearing.

The lawsuit names Trump, the Federal Reserve Board, and Chair Jerome Powell, and seeks injunction to bar her removal and affirm her continued board membership. Judge Jia Cobb has scheduled an initial hearing for the following day.

At stake is more than one governor's tenure. If upheld, Trump may achieve a majority on the seven‐member board-potentially reshaping monetary policy to align with his preference for lower interest rates amid pressure to boost borrowing ahead of the presidential election.

Legal experts stress that the“for cause” provision has never been judicially defined in this context. Courts have recognised that removal of Fed governors must rest on serious misconduct, inefficiency or neglect of duty-standards not clearly met by allegations of mislabelled primary residences made prior to her Fed membership. Cook's lawyers dismiss these as unsubstantiated and politically motivated.

Economists warn that allowing political interference in the Fed's composition risks eroding the central bank's long‐standing independence-a pillar underpinning its ability to take unpopular but necessary decisions like interest‐rate hikes to curb inflation.

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Cook, appointed in 2022 and the first Black woman governor on the Board, emphasises that her firing would be unprecedented in the 112‐year history of the institution. Her legal team frames the lawsuit as a vital defence of institutional autonomy and her rights under both statute and the Constitution.

If the court rules in her favour, Cook is expected to remain in place-and likely cast her vote at September's Federal Open Market Committee meeting. But if she loses, the move would mark a turning point in the delicate balance between executive power and central‐bank independence.
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