WASHINGTON — In a significant blow to President Donald Trump’s efforts to reshape the Federal Reserve, a federal appeals court on Monday night rejected the administration’s emergency bid to remove Governor Lisa Cook from the central bank’s Board of Governors, upholding a lower court’s temporary block on her termination. The 2-1 decision by the U.S. Court of Appeals for the District of Columbia Circuit ensures that Cook, the first Black woman to serve as a Fed governor, can participate in this week’s crucial Federal Open Market Committee (FOMC) meeting, where policymakers are widely expected to vote on a quarter-point cut to the federal funds rate amid signs of a cooling labor market.
The ruling comes at a pivotal moment for the U.S. economy, as the Fed grapples with inflation pressures exacerbated by Trump’s tariff policies and a weakening job market. Cook, appointed by President Joe Biden in 2022 and reappointed in 2023 for a term extending to January 2038, launched her legal challenge on August 28 after Trump fired her on August 25. The dismissal was based on allegations from Federal Housing Finance Agency (FHFA) Director Bill Pulte that Cook made false claims on mortgage applications in 2021—prior to her Senate confirmation—potentially securing more favorable loan terms by misrepresenting properties in Michigan, Georgia, and Massachusetts as primary residences.
U.S. District Judge Jia M. Cobb had granted Cook’s request for a preliminary injunction on September 9, finding that the removal likely violated the Federal Reserve Act’s “for cause” provision and her Fifth Amendment due process rights. Cobb noted that the allegations, which predate Cook’s tenure, did not constitute sufficient grounds for dismissal, describing them as raising “many serious questions of first impression.” Documents reviewed by Reuters indicate that Cook declared a Georgia property as a vacation home, not a primary residence, undercutting Pulte’s claims, while Michigan property tax authorities confirmed no rules were broken on a home she listed as primary.
The Trump administration swiftly appealed, arguing in briefs that the president has broad discretion to remove Fed governors for cause, including pre-office conduct that reflects a “lack of care in financial matters” inconsistent with public trust. Lawyers for the White House contended that courts should not second-guess such decisions, warning that blocking the removal would “diminish” the Fed’s integrity. They sought an emergency stay to oust Cook before the FOMC’s two-day meeting starting Tuesday, emphasizing the need to ensure governors are “competent and capable of projecting confidence into markets.”
Cook’s legal team fired back in a Saturday filing, urging the appeals court to deny the stay and highlighting the broader implications for Fed independence. “A stay by this court would therefore be the first signal from the courts that our system of government is no longer able to guarantee the independence of the Federal Reserve,” her attorneys argued, warning that it could allow the president to fire board members on “flimsy pretexts,” ending the era of central bank autonomy and risking dire economic consequences. They stressed that the government provided no meaningful notice or opportunity for Cook to respond to the allegations, a point the appeals court majority echoed in its order.
In the majority opinion, joined by Circuit Judge J. Michelle Childs—both Biden appointees—Circuit Judge Bradley N. Garcia wrote that Cook’s due process claim is “very likely meritorious,” as the administration “does not dispute that it provided Cook no meaningful notice or opportunity to respond.” The judges reasoned that granting the stay would “upend, not preserve,” the status quo, given Cook’s continuous service, and that her strong likelihood of success on the merits warranted denial. Circuit Judge Gregory G. Katsas, a Trump appointee, dissented, arguing the “equitable balance” favored the government due to the heightened interest in ensuring Fed competence.
White House spokesman Kush Desai responded defiantly Tuesday morning, stating to Barron’s that “The President lawfully removed Lisa Cook for cause. The Administration will appeal this decision and looks forward to ultimate victory on the issue.” The administration has until hours before the FOMC meeting to seek emergency relief from the U.S. Supreme Court, a path it has signaled it will pursue. This marks the first attempted “for cause” removal of a Fed governor in the central bank’s 111-year history, testing long-standing protections against political interference enshrined in the 1913 Federal Reserve Act, which shields governors from at-will dismissal but does not define “for cause” or removal procedures.
The case underscores Trump’s aggressive push to influence monetary policy, including public berating of Fed Chair Jerome Powell for not cutting rates aggressively enough despite inflation concerns. The Fed has held rates steady since late 2024 but signaled a potential cut last month amid hiring weakness; economists now anticipate a reduction to about 4.1%, which could lower borrowing costs for mortgages, auto loans, and businesses over time. Cook’s lawyers noted she has continued her duties during the litigation, and the Fed itself has remained neutral, requesting a swift resolution and pledging to abide by court orders.
Complicating matters, the Senate narrowly confirmed Trump’s nominee Stephen Miran—current chair of the Council of Economic Advisers—to a vacated Fed board seat on Monday night in a 48-47 party-line vote, meaning he will also join this week’s meeting. Miran’s addition could tilt the board toward Trump’s preferences, but Cook’s retention preserves a Biden-era voice in deliberations.
Beyond the immediate rate decision, the dispute has ramifications for the Fed’s independence, seen as essential for controlling inflation and stabilizing markets. The Supreme Court, in a May ruling on other agency removals, distinguished the Fed as a “uniquely structured, quasi-private entity” with singular historical traditions, potentially bolstering Cook’s position. Meanwhile, the Justice Department has launched a criminal mortgage fraud probe into Cook, issuing grand jury subpoenas in Georgia and Michigan, though no charges have been filed and Cook denies wrongdoing, calling the allegations a pretext for her policy stances.
As the legal battle escalates, markets await the FOMC’s outcome, with investors eyeing how this high-stakes clash might influence the central bank’s credibility and the broader economy under Trump’s second term.