President Donald Trump on Aug. 25 announced he was firing Federal Reserve governor Lisa Cook, an unprecedented move that brings the president one step closer to shaping the balance of the Fed's seven-member board in his favor.

In a letter shared on Truth Social, Trump claimed "sufficient cause" to remove Cook immediately, pointing to accusations that Cook made false statements on mortgage agreements.

Cook said Aug. 26 the president lacked authority to oust her from the board of the central bank. She plans to challenge the move in court, according to a statement from her attorney.

The move comes amid Trump's monthslong efforts to influence the Fed's decisions on interest rates. Trump had previously focused on pressuring Fed Chair Jerome Powell to lower rates through name-calling and termination threats, although he has since walked back threats to remove Powell.

Here's what to know:

Wall Street mostly shrugs off firing

U.S. stocks closed higher Aug. 26 despite the White House’s attempt to remove Cook.

The Dow Jones Industrial Average rose 0.3%, adding 135.6 points to 45,418.07. The S&P 500 climbed 0.4%, or 26.62 points, to close at 6,465.94. The tech-heavy Nasdaq composite closed at 21,544.27, up 0.4% or 94.98 points.

The 10-year U.S. Treasury note slipped about two basis points to close near 4.258%, while the 30-year bond closed higher. Investors were likely responding to “broader financial market stability concerns and the risk that the President's decision weakens demand for this week's two-year, five-year, and seven-year Treasury auctions,” said Oxford Economics Lead Analyst John Canavan in a note.

– Andrea Riquier

Trump says Cook firing will soon give him ‘a majority’ on Fed board

Trump touted soon having “a majority” of the appointments on the seven-member Federal Reserve board of governors following his attempted firing of Cook.

“We’ll have a majority shortly, so that will be great,” Trump said during a lengthy Cabinet meeting. “Once we have a majority, housing is going to swing and it’s going to be great.”

Trump said he has “some very good people” in mind as possible replacements to Cook, who he announced he terminated from the board in an Aug. 25 letter.

“I think I, maybe in my own mind, have somebody that I like,” Trump said, adding that Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent will also be involved in the decision. “It’s a very important decision."

Trump suggested he might switch Stephen Miran, his nominee to fill the final months of recently departed Fed Governor Adriana Kugler’s term, to instead fill Cook’s significantly longer term, which runs through until 2038. Trump would then pick a different person to replace Kugler.

Fed Chairman Jerome Powell’s term ends in 2026, giving Trump another opportunity to sway the composition of the board.

Meanwhile, Trump brushed off Cook’s announcement that she plans to sue the president over his attempt to fire her. “You always have legal threats. I had a legal fight that went on for years with crooked people, very horrible people,” Trump said referring to the criminal charges he faced after his first term in office.

– Joey Garrison

Fed says it will abide by court decision

The Fed on Aug. 26 said it will abide by any court decision on Trump's efforts to remove Cook from the Federal Reserve board of governors.

The Fed’s statement also says its governors' long, fixed terms are a “vital safeguard” that ensure monetary policy decisions are based on data, economic analysis and long-term economic interests for Americans, and that a president can only fire governors “for cause.”

While Trump's move to fire Cook has raised concerns over the central bank's autonomy, the Fed said it "reaffirms its commitment to transparency, accountability, and independence in the service of American families, communities, and businesses," according to an emailed statement.

– Bailey Schulz

Trump addresses Lisa Cook's plans to sue

Trump said he was prepared for a legal fight over his efforts to fire Cook.

Cook's attorney, Abbe Lowell, earlier in the day said Trump has “no authority” to remove the Fed governor, and announced plans to file a lawsuit challenging the action. Trump cited allegations of mortgage fraud when announcing his intention to fire Cook.

“She seems to have had an infraction and she can’t have an infraction, and especially that infraction, because she’s in charge of – if you think about it – mortgages. And we need people that are 100% above board, and it doesn’t seem like she was,” Trump said after an Aug. 26 Cabinet meeting.

The Fed can influence mortgage rates, but interest rate cuts won't always lead to cheaper home loans. USA TODAY has previously reported mortgage rates follow the path of the 10-year U.S. Treasury note, not the banking rates the Fed sets.

– Bailey Schulz

Does Lisa Cook support interest rate cuts?

While Cook has voted in line with the FOMC majority to keep interest rates steady in recent months, Mike Skordeles, head of U.S. economics at Truist, and Timothy Chubb, chief investment officer at Girard, said Cook has generally been one of the committee's more dovish members, meaning she generally favors lower rates.

– Rachel Barber

Will firing Cook lead to lower interest rates?

Skordeles said if Trump wants lower interest rates, going after Cook or Powell isn't necessarily the way to get them. He and Chubb both emphasized that while the Fed does influence long-term interest rates, it does not directly set them.

"The Fed controls overnight rates. They don't control prevailing interest rates," Skordeles said. "This notion that the Fed's going to cut and rates are going to go down — and, oh great, sunshine, unicorns, and confetti — that's not how rates work."

– Rachel Barber

Was Trump justified in firing Lisa Cook?

Trump said he fired Fed governor Lisa Cook because of allegations of mortgage fraud, which he called “potentially criminal,” and she vowed to fight her removal.

Legal experts said Congress authorized the president to remove Federal Reserve officials for “cause,” which means a good reason. Trump’s justification doesn’t pertain to Cook’s work at the Fed and she hasn’t had a chance to respond formally to the allegations. She hasn’t been charged.

The dispute over whether Trump had “cause” to fire Cook will likely be the foundation of her legal fight against being removed and could eventually be resolved by the Supreme Court.

“What constitutes cause is not clear as a legal matter,” Kathryn Judge, a law professor at Columbia University, told USA TODAY. “No previous president has ever tried to fire a Fed governor for cause."

– Bart Jansen

Cook to file lawsuit

Cook is filing a lawsuit challenging Trump’s move to fire her from the Fed’s board of governors.

Cook’s attorney, Abbe Lowell, said Trump has “no authority” to remove Cook, and that the president's attempt “lacks any factual or legal basis.”

“We will be filing a lawsuit challenging this illegal action,” Lowell said in an emailed statement.

The Federal Reserve Act of 1913 says a president can only fire a Fed governor "for cause.” Federal Housing Finance Agency Director Bill Pulte accused Cook of lying on applications for home mortgages in 2021.

– Bailey Schulz

Who is Lisa Cook?

Former President Joe Biden appointed Cook as governor of the Federal Reserve in 2022, making her the first Black woman in the role. She was reappointed in 2023 for a term set to end in 2038.

Before joining the Board, Cook served as a senior economist on the Council of Economic Advisers under former President Barack Obama. From 2000 to 2001, she worked as a senior adviser on finance and development in the U.S. Department of Treasury's Office of International Affairs. She also worked as a professor of economics and international relations at Michigan State University.

As one of seven members on the Fed’s Board of Governors, Cook plays a leading role in guiding U.S. monetary policy. She has voted with the majority to keep interest rates steady in recent months, despite Trump’s calls for the committee to lower them.

– Rachel Barber

What is the Fed?

The Federal Reserve, the central bank of the United States, is tasked with keeping prices stable and employment rates high.

A seven-member board of governors, led by Chair Powell, as well as five of 12 regional Federal Reserve bank presidents make up the Fed’s Federal Open Market Committee. This group holds eight regularly scheduled meetings each year to decide monetary policy, including interest rate adjustments.

The Fed raises its key interest rate when inflation is high to make borrowing more expensive and cool economic activity. When unemployment is high, it can cut rates to promote economic growth.

– Bailey Schulz

Cook says Trump can't remove her

Cook, in a statement released by her lawyer, said of Trump that "no causes exist under the law, and he has no authority" to remove her from the job she was appointed to by former President Joe Biden in 2022.

"I will continue to carry out my duties to help the American economy," she said in a statement emailed to USA TODAY.

Abbe Lowell, Cook's attorney, said Trump's "demands lack any proper process, basis or legal authority. We will take whatever actions are needed to prevent this attempted illegal action."

Congressional Black Caucus slams Trump

“In the 111-year history of the Federal Reserve, no president has ever attempted to remove a governor of the central bank until now," the Congressional Black Caucus said in a statement torching Trump's moves to fire Cook from the Federal Reserve board.

"President Trump is attempting to oust Dr. Lisa Cook − the first Black woman to serve on the Federal Reserve Board − with no credible evidence of wrongdoing," the group said. "This is a blatant effort to distract from his failure to lower costs for Americans and a transparent attempt to install a loyalist at the central bank who will carry out his agenda without question."

Stock futures down after Trump moves to fire Fed governor

U.S. stock futures are lower after President Donald Trump fired Federal Reserve Governor Lisa Cook, saying she submitted fraudulent mortgage applications.

“I have determined that there is sufficient cause to remove you from your position,” Trump wrote in a letter to Cook posted on social media.

At 6:15 a.m ET, futures tied to the blue-chip Dow fell -0.14%, while broad S&P 500 futures slipped -0.08% and tech-heavy Nasdaq futures lost -0.06%.

– Medora Lee

What does Cook's firing mean for the Fed?

Cook's firing escalates Trump's efforts to reshape the Fed's makeup to his liking.

Governor Adriana Kugler, another Biden appointee, announced an early resignation in August. Trump nominated Stephen Miran, who chairs the White House’s Council of Economic Advisers, to serve the roughly six months remaining of Kugler's term, although Miran has yet to be confirmed by the Senate.

The board also has two Trump-appointed board members, Michelle Bowman and Christopher Waller, both of whom have expressed support for lower rates.

Powell, who was appointed by Trump as chair in 2017 and reappointed in 2022 under former President Joe Biden, is set to end his term as chairman in May 2026, although he could serve as a governor until 2028. Cook was nominated to the Fed's board of governors by Biden, along with board members Philip Jefferson and Michael Barr.

If Miran replaces Kugler and Cook is ousted from her seat, Trump's nominees would have a majority on the seven-person board.

The board members, along with the five presidents of the regional Federal Reserve banks, make up the Federal Open Market Committee, which decides the Fed's key interest rate.

Does this mean the Fed will lower interest rates in September?

Powell had already signaled that the Fed could move toward interest rate cuts soon.

The Fed adjusts interest rates to support its dual mandate of keeping prices stable and employment high. When inflation is high, the Fed can raise rates to make borrowing more expensive and cool economic activity. When unemployment is high, cutting rates can promote economic growth and hiring.

The Fed has kept rates steady since late 2024 amid concerns that tariffs could drive up consumer prices, but that could soon change. While the Fed has yet to commit to a rate cut, Powell on Aug. 22 said "the balance of risks appears to be shifting" as the downside risks to employment rise, which "may warrant adjusting our policy stance."

What does this say about the Fed's independence?

The central bank was established as an independent agency so that its decisions are based on what's best for the economy. Confidence in the Fed's autonomy could take a blow if the Fed bows down to a president's demands without a sound basis.

"The concern is the intent of the Trump administration: it's not to preserve Fed integrity, it's to install Trump's own people at the Fed," said Kyle Rodda, senior financial market analyst at Capital.com, of Cook's firing, as reported by Reuters. "It goes back to trust in institutions... It's another crack in the edifice of the United States and its investibility.

Analysts say that could erode the value of the U.S. dollar, which has already grown weaker this year.

"The dollar continues to weaken as American governance continues to erode," said Skanda Amarnath, executive director of think tank Employ America and a former Fed economist. "That means higher prices for all commodities."

What happens next?

Cook has previously said she has "no intention of being bullied to step down." After Trump asked her to resign on Aug. 20, Cook said she was gathering information to answer "any legitimate questions and provide the facts."

Contributing: Reuters

(This story was updated with new information)

This article originally appeared on USA TODAY: Fed governor Cook to sue over Trump’s attempt to fire her from Fed. What's next.

Reporting by Bailey Schulz, Rachel Barber, Bart Jansen, Medora Lee, Joey Garrison and Andrea Riquier, USA TODAY / USA TODAY

USA TODAY Network via Reuters Connect