On August 25, 2025, U.S. President Donald Trump signed a document dismissing Federal Reserve Governor Lisa Cook on suspicion of mortgage fraud. The decision sent immediate shockwaves through global financial markets, regarded as a landmark case of political interference in the economy, and more notably, the first challenge in the Federal Reserve’s history—since its establishment in 1913—of a president directly removing a Fed governor from office.
On October 1, the U.S. Supreme Court issued a ruling to temporarily retain Cook in her position and scheduled oral arguments for the case in January 2026.
This decision means Cook will continue to serve until the justices hear arguments next year. The incident has been dubbed “unprecedented” by public opinion, directly striking at the most sensitive nerve of the U.S. financial system—the independence of the central bank.
01 The Eruption of the Incident
On August 25, 2025, Trump sent an open letter to Fed Governor Lisa Cook, announcing the termination of her appointment “effective immediately”. The letter accused Cook of listing two properties she owned in Michigan and Georgia as her “primary residence” when applying for a mortgage in 2021, in order to secure a lower interest rate.
Citing Article II of the U.S. Constitution and relevant provisions of the amended Federal Reserve Act of 1913, the Trump administration claimed in the open letter that it had identified “just cause” to revoke Cook’s position as a Federal Reserve Governor.
Cook responded promptly, stating there was “no legal basis” for her dismissal from the Fed and that she would continue to perform her duties. Hours later, Cook further characterized Trump’s move as “a pretext to seize control of the Federal Reserve and undermine its independence”.
02 Legal Tug-of-War
After Cook refused to accept the dismissal decision, both sides entered legal proceedings. On September 9, a judge of the U.S. District Court for the District of Columbia ruled to suspend the termination order.
In the ruling, the district court judge pointed out that the Trump administration had failed to prove that Cook had committed malfeasance or fraud in her capacity and performance as a Fed Governor.
The Trump administration immediately filed an appeal. On September 11, the U.S. government submitted an emergency application to the Federal Circuit Court of Appeals, seeking to overturn the lower court’s ruling.
On September 15, ahead of the Federal Reserve’s monetary policy meeting, the federal appellate court in Washington rejected the Justice Department’s emergency request and upheld the lower court’s temporary injunction blocking Trump from removing Cook.
Also on September 15, after reviewing Cook’s property records, the Ann Arbor Property Tax Authority in Michigan stated that no evidence of irregularities had been found.
On September 18, the White House directly petitioned the Supreme Court to allow Trump to issue an emergency executive order to immediately dismiss Fed Governor Lisa Cook.
03 The Supreme Court’s Stay Order
On October 1, 2025, the U.S. Supreme Court issued a ruling to temporarily maintain Lisa Cook’s position as Federal Reserve Governor and scheduled oral arguments for the case in January 2026.
This ruling has temporarily erected a firewall for the Fed’s independent decision-making. U.S. media commented that the Supreme Court’s move had temporarily blocked Trump’s attempt to dismiss Cook.
Notably, earlier this month, the Supreme Court had allowed Trump to dismiss Lina Khan, a member of the Federal Trade Commission appointed by Joe Biden, on grounds of “incompetence” and “inefficiency”.
Nevertheless, in May this year, while issuing a ruling favorable to the White House in an appeal case involving personnel appointments and removals at federal independent agencies, the Supreme Court specifically noted that the ruling would not apply to the Federal Reserve.
04 Focus of Legal Disputes
The core legal dispute hinges on the interpretation of the “just cause” clause in the Federal Reserve Act. Under Section 10 of the Act, a president may remove a Federal Reserve Governor only for “just cause”.
The Trump administration argued that Cook’s actions in her mortgage application constituted “fraudulent and potentially criminal conduct”, which had undermined her credibility as a financial regulator.
However, legal experts pointed out that “just cause” typically refers to serious violations of law, dereliction of duty, or job-related misconduct committed during one’s term in office—not personal financial affairs. What is more, Cook’s mortgage application predated her appointment as a Fed Governor.
In documents submitted to the Supreme Court, Cook’s attorneys argued that allowing Trump to remove her would “undermine the institutional foundation upon which U.S. markets and the economy rely”.
05 Structural Changes in the Federal Reserve Board
The Federal Reserve Board currently consists of seven governors, two of whom—Christopher Waller and Michelle Bowman—were nominated by Trump. If Adriana Kugler, another of Trump’s nominees, secures Senate confirmation, and if Trump nominates a new governor after successfully ousting Cook, four members of the board will align with Trump’s stance.
A research report from Soochow Securities pointed out that if Trump’s nominee Adriana Kugler is approved by the Senate, and if a new governor is nominated following Cook’s successful removal, four members of the board will be aligned with Trump—accounting for a majority.
Analysts believe that if Trump gains two more nomination seats, he will hold a majority on the board, thereby gaining the leverage to reshape the entire Federal Reserve system.
It should be noted, however, that monetary policy decisions are made by a voting committee of 12 members: the seven Fed governors, the president of the Federal Reserve Bank of New York, and four rotating presidents of regional Fed banks.
06 Challenges to Federal Reserve Independence
Cook is the first African American woman to serve as a Federal Reserve Governor, with her term originally set to expire in 2038. She had previously advocated for the Fed to adopt a wait-and-see stance and resisted calls for aggressive interest rate cuts amid pressure from Trump.
Bai Xue, Senior Deputy Director of the Research and Development Department at China Chengxin International Credit Rating Co., Ltd., stated that Trump’s move “has broken the long-standing tradition of the White House respecting central bank independence and constitutes a major challenge to the Fed’s independence and the future direction of monetary policy.”
Hu Jie, Professor at the Shanghai Advanced Institute of Finance (SAIF) at Shanghai Jiao Tong University, argued that the accusation is not an isolated incident but an extension of Trump’s long-standing dissatisfaction with the Federal Reserve. Unable to directly shake the position of Chair Jerome Powell, his team has instead sought a breakthrough through the personal conduct of other governors.
Analysis from Evercore ISI indicated that compared to Trump’s attempt to dismiss Powell before the end of his term, a more worrying prospect is the widespread erosion of Fed independence through new appointments.
07 Market Reactions and Global Implications
News of Trump’s dismissal of Cook triggered an immediate market response. Yields on 2-year U.S. Treasury bonds plummeted, signaling growing market expectations of Fed rate cuts next year as more “Trump-aligned” governors take office.
At the same time, concerns over the Fed’s independence and the credibility of the U.S. dollar pushed yields on 10-year U.S. Treasury bonds higher. The U.S. dollar index briefly fell from 98.5 to 98.1, while the price of gold surged from $3,351 per ounce to $3,377 per ounce.
Since August, the U.S. dollar index has dropped by more than 2%, while spot gold prices have risen by over 17% in the same period. The Governor of the Bank of Canada commented that concerns over the Fed’s independence have weakened the U.S. dollar’s safe-haven appeal in global financial markets.
Analysts believe that if market participants perceive a weakening of the Fed’s independence, financial assets could experience sharp volatility. One of the biggest risks is investors dumping U.S. Treasury bonds, thereby pushing up long-term bond yields relative to short-term ones in the U.S. bond market.
Gold prices remain elevated, reflecting lingering uncertainty amid the unfolding incident and persistent market concerns over the Fed’s independence.
This legal battle over the appointment and removal of a Fed governor has transcended the fate of an individual official, evolving into a litmus test of whether central bank independence can survive under the U.S. system of separation of powers.
The Supreme Court’s oral arguments in January 2026 will determine whether the Federal Reserve continues to uphold its professionalism and independence as the world’s most important central bank, or gradually becomes a “vassal of presidential will”.
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