The dollar weakened and US borrowing costs jumped after President Donald Trump claimed to have sacked Federal Reserve governor Lisa Cook, escalating his battle with the country’s independent central bank.
In a move without precedent in modern US history, Trump said on Tuesday evening that Cook was “effective immediately” removed from her position on the Fed’s seven-strong governing board over allegations of mortgage fraud. Cook has denied wrongdoing and said she would not resign, setting the stage for a legal battle over whether the president has the authority to fire a Fed governor.
The dispute comes as Trump intensifies pressure on the central bank to deliver steep interest rate cuts to support the economy and the jobs market.
Investors sold US government bonds following Trump’s remarks, sending yields on 30-year Treasuries up 0.06 percentage points to 4.92 per cent. The dollar slipped 0.15 per cent against a basket of major currencies and 0.13 per cent against sterling, falling to $1.35. Gold, a traditional safe haven, climbed 0.4 per cent to $3,388.60 an ounce, its highest since 11 August.
Wall Street equities recovered from a choppy open to close higher, with the S&P 500 and Nasdaq both up 0.4 per cent. Analysts said the relatively modest fall in the dollar reflected uncertainty over whether Trump’s decision would hold up in court.
Lee Hardman, currency analyst at MUFG, said: “The relatively modest US dollar sell-off so far reflects in part uncertainty over whether President Trump’s decision to fire Fed governor Cook will stand legally. It does though mark a significant step up in President Trump’s attack on the Fed’s independence, which could eventually trigger a much bigger sell-off for the US dollar.”
Cook, who became the first African-American woman appointed to the Fed board in 2022, has been accused of improperly declaring two separate properties in Georgia and Michigan as her primary residence in order to secure lower mortgage rates. She said on Tuesday: “I will continue to carry out my duties to help the American economy as I have been doing since 2022.”
A Federal Aviation Administration-style probe into the pilots’ actions was not in play here, but Fed insiders warned that Cook’s refusal to resign complicates the central bank’s work. Jim Bianco, of Bianco Research, said: “If they allow her to continue with her duties as a governor and the courts find that the president does have the authority to fire her, anything she does on behalf of the Fed as a governor starting today will not be valid.”
If Cook is forced out, Trump will gain the opportunity to appoint his second Fed governor in a month, after nominating his economic adviser Stephen Miran to a vacant seat created by Adriana Kugler’s resignation.
The turmoil at the Fed comes at a critical juncture for US monetary policy. The central bank has kept interest rates on hold at 4.25–4.5 per cent since December, but traders expect the first cut of the year in September in response to a weakening jobs market and inflation holding steady at 2.7 per cent.
Fed chair Jerome Powell, who is also facing attacks from Trump, signalled last week that incremental rate cuts could be on the table. Two current Fed rate-setters, both Trump appointees, have already called for immediate easing. If Miran joins in time for the 18 September meeting, he would become the third dissenter on the committee, marking the biggest internal split since 1988.
With Trump demanding rates as low as 1 per cent, the confrontation with Cook has added to fears about the erosion of Fed independence – a principle long viewed as vital to maintaining credibility in US economic policy.