For years, Donald Trump has railed against the Federal Reserve, routinely criticizing and threatening its chair Jerome Powell and demanding he get his own way on interest rates.
However, his declaration on Monday night that he would remove the US central bank’s governor Lisa Cook from office with “immediate effect” took things to a new level.
Experts say the move is unprecedented and represents the most serious threat to the Fed since it became independent almost three quarters of a century ago.
The move comes after a sustained campaign of pressure on Powell from Trump, when he has been demanding Powell lower interest rates. The President claims that would boost the US economy. Replacing Cook with a loyalist could make the Fed’s seven-member board more likely to vote to Trump’s liking. Trump has already picked three of the seven members.
In a letter to Cook, Trump claimed he had reason to remove her because she had claimed two properties as her primary residence in two separate mortgage documents in 2021.
Cook has resisted Trump’s attempts to remove her. A statement issued through her lawyer Abbe Lowell says “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so. I will not resign.”
Lowell called Trump’s move “illegal” and vowed to fight it in the courts. Several prominent members of the Democratic Party, including Senator Elizabeth Warren, the top Democrat on the Senate committee that oversees the Fed, also said it was illegal.
A lengthy legal battle is likely to ensue. The Fed’s founding legislation says that its governors can only be removed “for cause.” Bill Pulte, a Trump ally who heads the Federal Housing Finance Agency, says he will send a criminal referrhey al regarding Cook’s mortgage applications to the US Justice Department. The courts will ultimately decide if Trump’s action is illegal or not.
Why is this such a significant crisis for the US economy and financial system?
Trump’s decision, coming just weeks after he sacked the head of the Bureau of Labor Statistics following a monthly jobs report that displeased him, has rattled investors who fear that the pillars of the US economic system are being threatened.
Several legal and economic experts say Trump’s move on the Fed is unprecedented. Lev Menand, a Professor at Columbia Law School, told the Financial Times that if the sacking of Cook sticks, it means “something close to the end of central bank independence in the US.”
Peter Conti-Brown, an economist at the University of Pennsylvania told the Wall Street Journal that if “Fed independence stands for anything, it stands for the idea that monetary policy should not be made by the whims of the sitting president.” He said the move could mark the end of Federal Reserve independence “as we know it.”
With Trump ramping up attacks on the Fed’s independence over the past months, there has been growing speculation over how far he would ultimately take the issue.
The independence of the Federal Reserve and central banks generally from political decisions has been seen as central to the United States‘ position as the world’s most powerful economy and most attractive investment market for many decades.
Last year, the International Monetary Fund’s Managing director Kristalina Georgieva said “independence is critical to winning the fights against inflation and achieving stable long-term economic growth.”
The White House’s own Council of Economic Advisers last year, in the final months of the Biden administration, emphasized the need for central bank independence across political cycles. It said the Fed’s ability to act independently of political motivations makes it the institution most credible and capable of dealing with high inflation.
Faith in US sovereign debt and the economy’s long-term future have been hit since Trump’s major tariff announcements in early April. The US dollar’s status as the world’s reserve currency has been threatened as a result, with many investors selling off. The currency has dropped by around 9% this year.
What have been the immediate economic and financial effects?
Long-term US treasury bonds, which are representative of faith in the US economy over the longer term and which have been under pressure throughout 2025, sold off slightly after the news broke on Monday.
The US dollar also fell slightly against other currencies. However, overall market reaction has so far been muted.
“It’s another crack in the edifice of the United States and its investibility,” Kyle Rodda, a senior financial market analyst at Capital.com in Melbourne, told Reuters. He said that investors fear the move is a reflection of Trump’s desire to control the Fed, adding that it further damages trust in US financial institutions.
“People want to see if it happens, but at the same time, it’s very difficult to sell the US because of the credibility issues,” Tohru Sasaki, chief strategist at Tokyo-based Fukuoka Financial Group, told Reuters.
Are there wider risks for the global economy?
If Trump succeeds in taking effective control of the Fed, it will create an unwelcome precedent which many central bankers around the world fear.
“The politically motivated attacks on the Fed have a spiritual spillover to the rest of the world, including Europe,” European Central Bank policymaker Olli Rehn told Reuters at the Fed’s annual gathering in Jackson Hole, Wyoming, last weekend.
According to that Reuters report, several central bankers said a loss of Fed independence would threaten broader financial instability and would lead to major turmoil in financial markets.
For decades, the Federal Reserve’s model of operating free of political interference and sticking to its goal of keeping inflation at 2%, has been followed by other central banks around the world.
Comparisons has been drawn between Trump’s move and Turkish president Recep Tayyip Erdoğan. Erdoğan’s direct and sustained interventions in the running of the Turkish central bank have been widely blamed for the country’s ongoing economic and financial crisis.
Although it remains uncertain what exactly will happen to Cook now, Trump appears closer than ever to being able to control the Fed and directly influence monetary policy. Experts say that if there is not a major response in the bond market — something which has tempered Trump previously — there may be no going back.
“Unless and until the bond market responds poorly,” Eric Winograd, senior economist for fixed income at AllianceBernstein told the Financial Times, “there is no reason for the administration to change their tune: they are slowly gaining control over the institution and there appears to be little that will stand in their way.”
