Federal Reserve Governor Lisa Cook has sued the Trump administration in an effort to overturn the president’s attempt to fire her, launching an unprecedented legal battle that could significantly reshape the Fed’s longstanding political independence.

The lawsuit seeks an injunction to block her firing and “confirm her status” as a member of the Fed’s governing board.

If the courts uphold Trump’s firing of Cook, it would significantly increase the president’s control over one of the few remaining independent agencies in Washington. Most observers expect the case to end up at the Supreme Court.

No president has sought to fire a Fed governor in the institution’s 112-year history until Trump posted a letter on media late Monday saying that Cook was fired. Trump said the reason for her removal were allegations that she committed mortgage fraud in 2021, before she was appointed to the board.

The Supreme Court has signaled that the president can’t fire Fed officials over policy differences, but he can do so “for cause,” typically meaning misconduct or neglect of duty. Cook has not been charged with any crime.

The lawsuit, filed by Cook’s lawyer Abbe David Lowell, argues that the allegations don’t involve misconduct by Cook while in office and haven’t been proven. Cook should also have been given a chance to answer the charges, the suit says.

“The unsubstantiated and unproven allegation that Governor Cook ‘potentially’ erred in filling out a mortgage form prior to her Senate confirmation—does not amount to ’cause,’ the lawsuit says.

“Allowing the President to remove members of the Board over policy disagreements would also render illusory the Board’s independence,” the suit says.

The president’s decision comes as he has repeatedly attacked Fed Chair Jerome Powell and the other members of the Fed’s interest-rate setting committee for not cutting the short-term interest rate they control more quickly. It currently stands at 4.3%, after Fed policymakers reduced it by a full percentage point late last year.

The suit argues that the allegations of mortgage fraud are simply a pretext to fire Cook because she hasn’t voted to lower interest rates: “the mortgage allegations against her are pretextual, in order to effectuate her prompt removal and vacate a seat for President Trump to fill and forward his agenda to undermine the independence of the Federal Reserve.”

Powell signaled last week that the central bank was leaning toward cutting its rate at its next meeting Sept. 16-17.

Those attacks have opened up the White House to the criticism that its firing of Cook over alleged mortgage fraud is just a pretext to open up another seat on the board for a Trump loyalist. Trump has said he will only appoint people to the Fed who will support lower rates.

The Fed exercises expansive power over the U.S. economy by adjusting a short-term interest rate that can influence broader borrowing costs for things like mortgages, auto loans and business loans.

If the courts ultimately green-light Trump’s firing of Cook, it could erode the Fed’s political independence, which enables it to take unpopular steps like raising interest rates. A less-independent Fed could leave Americans paying higher rates because investors would demand a higher yield to own bonds to offset potentially greater inflation in the future, pushing up borrowing costs throughout the economy.

(AP)