Washington (AFP) - Donald Trump’s move to fire Federal Reserve Governor Lisa Cook has marked a dramatic escalation in his effort to control the US central bank – in a step that puts the institution’s independence at risk.

For months, the US leader has been calling for the bank to slash interest rates, lashing out repeatedly at Fed Chair Jerome Powell for being “too late” and calling him a “moron.”

But policymakers have been holding rates steady as they monitor the effects of Trump’s wide-ranging tariffs on inflation.

By ousting Cook, the president could potentially add another voice to the Fed’s board to try and shift interest rates in his favored direction.

After calling for her resignation last week, Trump posted a letter on his Truth Social platform Monday evening, saying she was fired “effective immediately.”

He cited allegations of false statements on her mortgage agreements, saying: “I have determined that there is sufficient cause to remove you from your position.”

Trump told reporters Tuesday that Cook “seems to have had an infraction,” saying “we need people that are 100 percent above board.”

But Cook on Tuesday rejected Trump’s unprecedented bid to remove her, saying he had no legal authority to do so.

“I will not resign,” said Cook, the first Black woman to serve on the central bank’s board.

“President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so,” she added.

Cook’s attorney Abbe Lowell added: “We will be filing a lawsuit challenging this illegal action.”

A Fed spokesperson said the central bank “will abide by any court decision.” The official noted that Cook was seeking a judicial decision that would confirm her ability to keep honoring responsibilities as a Fed governor.

The spokesperson stressed that long tenures and removal protections for governors are “a vital safeguard,” but did not provide further details on Cook’s status before the court outcome.

Among the alleged false statements was that Cook had claimed two primary residences, one in Michigan and another in Georgia.

Cook has not been charged with a crime and the alleged incidents occurred before she was in her current position.

- Independence eroded? -

The potential legal dispute would be the latest test of presidential powers under Trump’s new term, with the 79-year-old Republican – backed by loyalists throughout the government – forcefully moving to exert executive authority.

But even as the Supreme Court’s conservative majority recently allowed Trump to fire members of other independent government boards, it created a carveout for the Fed in its ruling.

Federal law says that Fed officials can only be removed for “cause,” which could be interpreted to mean malfeasance or dereliction of duty.

Fed independence from the White House “is being eroded,” said David Wessel, a senior fellow in economic studies at Brookings.

He told AFP that Trump appears to be trying to get a majority on the Fed’s board, in an effort to lower interest rates.

But Wessel warned: “History tells us that when politicians control the central bank, the inevitable consequence is higher inflation and financial instability.”

The Fed’s credibility as an inflation-fighter will be questioned, he said, cautioning that global investors will demand a premium on US Treasury debt as a result.

- Consequences -

For now, Oxford Economics senior US economist Matthew Martin expects that even if Cook’s removal could tip the scale in favor of lower interest rates, Fed decisions are still voted upon by 12 officials.

But a Fed that “answers to the whims of an administration” draws more investor wariness, he added.

“Despite lower short-term interest rates, long-term interest rates would rise for the US government, households, and businesses – increasing their borrowing costs,” Martin said.

The Fed has held interest rates at a range between 4.25 percent and 4.50 percent this year.

Besides Cook, Trump has recently suggested that what he called an overly costly renovation of the Fed’s headquarters could be reason to oust Powell, before backing off the threat.

Meanwhile the president has picked Stephen Miran, the leader of his White House economic panel, to fill a recently vacated seat on the Fed’s board.

Cook took office as a Fed governor in 2022 and was reappointed to the board in 2023.