President Trump Announces “Dismissal” of Fed Governor Lisa Cook | Legality under the Federal Reserve Act and Market Impact Explained

On August 25, 2025, U.S. President Donald Trump published a letter on his social media platform "Truth Social" announcing the dismissal of Federal Reserve Board (FRB) Governor Lisa Cook. He cited alleged mortgage fraud as the reason. However, it remains unclear whether this constitutes "cause" under the Federal Reserve Act, raising shockwaves across markets and academia both in the U.S. and abroad.

Key Points (Summary)

• President Trump posted a signed letter on social media, declaring the "immediate dismissal" of Governor Cook.
• The grounds are allegations of false statements in a 2021 mortgage loan application (declaring multiple properties as "primary residences").
• The applicability of "cause" under the Federal Reserve Act remains unsettled, with judicial review likely to be decisive.
• Following the news, the U.S. dollar weakened, long-term Treasury yields rose, and gold prices climbed, reflecting growing market uncertainty.

What Happened

In the letter published on social media, Trump declared: "By exercising my authority under Article II of the Constitution and the Federal Reserve Act, I hereby dismiss Governor Cook effective immediately." The letter cited remarks from the head of the Federal Housing Finance Agency (FHFA), who alleged misconduct in mortgage contracts, stating there was "sufficient evidence of false statements."

Legal Basis and Precedent

Under U.S. law, the Federal Reserve Act allows FRB governors to be removed only for "cause," such as neglect of duty or malfeasance. However, interpretation of "cause" is vague. In particular, to protect the independence of central banks, presidents have historically refrained from exercising removal powers. This case involves private transactions prior to Cook’s appointment, raising doubts as to whether it legally constitutes grounds for dismissal. Legal challenges are expected.

Market Reactions

Immediately after the news, the U.S. dollar weakened. Yields on 2-year Treasuries, sensitive to short-term rates, declined, while 10-year yields, sensitive to inflation risks, rose, steepening the yield curve. Meanwhile, gold, seen as a safe-haven asset, increased in price. Markets are now more cautious of risks to FRB independence, prompting a reassessment of short-term policy expectations.

Upcoming FOMC Schedule and Implications

The next meeting of the FOMC is scheduled for September 16–17, 2025. It is expected to be a crucial meeting where a rate cut may be considered for the first time in six sessions. Whether Governor Cook can attend is a key question. If the dismissal dispute drags on, the legitimacy of FOMC decision-making could be called into question.

Background and Key Figures

• Lisa D. Cook: Nominated in 2022 by former President Biden, the first Black woman to serve as a Federal Reserve Governor.
• Donald Trump: Current U.S. President, known for repeatedly pressuring monetary policy decisions.
• Federal Reserve (FRB): The U.S. central banking system, where institutional independence is highly valued.

Conclusion and Outlook

This "dismissal declaration" is nearly unprecedented, and judicial decisions will be key. While critics argue it undermines central bank independence, markets are already pricing in greater uncertainty, with short-term volatility expected to rise. Depending on the Trump administration’s next moves, the relationship between politics and monetary policy could shift significantly, with meaningful implications for global financial markets.