President Donald Trump said he's firing Federal Reserve Gov. Lisa Cook Monday night, as he seems to remake the central bank's policymaking body. Cook said "he has no authority to do so."
The major indexes rose slightly Tuesday afternoon.
Trump said he has "sufficient cause" to remove Cook. Citing a recent criminal referral, Trump said in a letter to Cook that there is "sufficient reason to believe you may have made false statements on one or more mortgage agreements."
Federal Housing Finance Agency Director Bill Pulte, a ferocious critic of Fed chief Jerome Powell, publicly accused Cook of mortgage fraud on Aug. 20 and sent a criminal referral to the Justice Department. The DOJ is now starting to probe Cook.
A recent Supreme Court ruling suggested that Trump could only fire the Federal Reserve chairman and governors for cause.
Cook said in a statement Monday night that "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."
Cook has hired a well-known attorney to represent her.
The Federal Reserve said it will follow the courts on whether Trump has the authority to fire Cook. Trump also said he will "abide by the court."
Market Reaction To Trump Move Muted
Despite market concern about Fed independence, the major indexes rose slightly on the Trump-Cook news.
The 10-year Treasury yield dipped to 4.255% from Monday's 4.27%, reversing from slim morning gains. The two-year yield, more closely tied to the Fed rate outlook, declined five basis points 3.68%.
Trump Seeks To Remake FOMC
Trump told reporters Friday that he would fire Cook if she didn't resign. Cook has said she wouldn't be "bullied" out of her role.
Previously, he had suggested he might oust Fed Chief Powell.
Trump is looking to significantly alter the makeup of the Federal Open Market Committee (FOMC), as he calls for major rate cuts. Powell suggested Friday that conditions "may warrant" rate cuts.
He recently nominated economic adviser Stephen Miran to fill a newly open Fed governor seat. Meanwhile, Powell will exit as chairman next spring, though he could choose to stay on as Fed governor.
Trump said Tuesday that he'll soon have a majority on the Fed board of governors to start pushing rates. If he successfully ousts and replaces Cook, he would have a 4-3 edge of Trump-selected governors.
Furthermore, Fed board majority could be used to block the reappointment of regional Federal Reserve bank presidents, spurring a massive shift in the overall FOMC.
The FOMC includes the Fed chief and six other governors, the New York Fed chief and four other regional Fed presidents on a rotating basis.
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