Will Trump’s latest attack on the Fed erode central bank’s independence?

United States President Donald Trump has said he will fire Federal Reserve Governor Lisa Cook over unproven claims of mortgage fraud, an unprecedented step which could test the boundaries of presidential power over the central bank’s independence.

In a letter posted on social media on Monday, Trump told Cook he has “sufficient cause to remove you from your position”. Trump claims that Cook misleadingly indicated that she intended to live in two homes as her primary residence in 2021.

Cook, appointed to the Federal Reserve (or Fed) board in 2022 by former President Joe Biden, has yet to provide a detailed account of the transactions since the matter was raised by the Federal Housing Finance Agency last week.

Trump’s letter, which has escalated his fight to control the Fed, spooked financial markets. Both the US dollar and long-dated treasuries fell on Tuesday. The president has made little secret of his desire for the US central bank to spur growth by lowering interest rates.

So, why is Trump intensifying his attacks on the Fed, and how will it affect the independence of the central bank?

In the letter, Trump said Cook had falsified her bank records to obtain favourable mortgage terms before joining the Fed. He accused her of “deceitful and criminal conduct in a financial matter” and said he did not have confidence in her “integrity”.

“At a minimum, the conduct at issue exhibits the sort of negligence in financial transactions that calls into question your competence and trustworthiness as a financial regulator,” he added, claiming authority to dismiss Cook under Article 2 of the US Constitution.

Last Friday, Trump threatened to fire Cook – a former professor of economics at Michigan State University and the first African American woman to serve on the Fed board – if she did not resign.

But Cook has been defiant about staying on: “I have no intention of being bullied to step down from my position because of some questions raised in a tweet,” Cook said in a statement on August 20.