After Trump’s attempt to dismiss Lisa Cook from the Fed, markets are still waiting to see the fallout
Investors appear to be betting on a short-term decrease in interest rates and a long-term increase, based on the steepening of the yield curve in trading on Tuesday.
The 30-Year Treasury rate increased by two basis points on Tuesday afternoon following President Donald Trump's announcement on Truth Social that he was dismissing Fed Governor Lisa Cook “for cause.”
However, the 10-year Treasury, which is most closely tied to mortgage rates, fell just over one basis point to 4.261% in mid-afternoon trading. Economists believe the market is taking a wait-and-see approach regarding whether Trump can fire members of the Fed board.
The administration has accused Cook of mortgage occupancy fraud, citing this as the reason for attempting to dismiss her from the board.
Cook released a statement this morning vowing not to resign. She has hired attorney Abbe Lowell to represent her in a lawsuit against the action.
“President Trump has no authority to remove Federal Reserve Governor Lisa Cook. His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis. We will be filing a lawsuit challenging this illegal action," Lowell said in a statement.
The Federal Reserve issued a statement Tuesday afternoon through a spokesperson.
“Cook has indicated through her personal attorney that she will promptly challenge this action in court and seek a judicial decision that would confirm her ability to continue to fulfill her responsibilities as a Senate-confirmed member of the Board of Governors of the Federal Reserve System,” the statement said.
Both the Fed and, later, Trump, when responding to the Fed statement, said they would abide by any court ruling on the matter.
Remaking the Fed
The Fed board is composed of seven members, although there is currently one empty seat due to the resignation of Adriana Kugler earlier this month. If Trump can fill that vacant seat and potentially replace Cook, it would give him a 4-3 majority of those seven. There are also five Federal Reserve Bank presidents who make up the full 12-member Federal Open Market Committee.
Bill Pulte, director of the FHFA, praised the move. He also posted his thoughts on his X account about Cook’s possible removal.
“Thank you President Trump for your commitment to stopping mortgage fraud and following the law,” Pulte said. “If you commit mortgage fraud in America, we will come after you, no matter who you are.”
US FEDERAL HOUSING STATEMENT ON THE FIRING OF LISA COOK:
— Pulte (@pulte) August 26, 2025
Thank you President Trump for your commitment to stopping mortgage fraud and following the law. If you commit mortgage fraud in America, we will come after you, no matter who you are.
William J. Pulte
Director
Jamie Cox, managing partner at Harris Financial Group, told CNBC that Cook’s removal is another step in Trump’s effort to remake the Federal Reserve.
“The President is going to remake the Board of Governors of the Federal Reserve over the next year, and he’s doing so in very unconventional ways – we’ve had a resignation and now a termination, opening the door to accelerate this change,” Cox told CNBC. “Trump has essentially usurped the Fed’s forward guidance function for the time being and is telling markets lower rates are coming, which is being manifest in a steeper yield curve, with short-term treasuries dropping like a rock.”
Claudia Sahm, economist and creator of the recession indicator, the Sahm rule, agreed on her X account that it was about Fed control. She criticized the move.
“This is a new attempt of the administration to gain more control over the Fed,” Sahm said on X. “They’re pulling as many different levers as they can find to get that control. Do not forget. It’s about control of the Fed. This is a very dark day.”
September rate cut still likely
At a cabinet meeting earlier today, Treasury secretary Scott Bessent discussed Fed independence.
“The Federal Reserve's independence comes from a political arrangement between itself and the American public,” Bessent said. “Having the public's trust is the only thing that gives it credibility.”
He then addressed Trump, saying, “And you, sir, are restoring trust to government. You are weeding out the waste, fraud and abuse. And the old ways of doing things are not good enough.”
The administration is putting pressure on the Fed to cut rates at the upcoming September meeting. CME FedWatch, which predicts Fed rate movement based on 30-Day Fed Funds futures prices, still believes there will be a cut in September, with a likelihood of 87.3%.
It is pricing in two 25-bps cuts over the rest of 2025, with the second likely to occur in December. FedWatch is also betting on three rate cuts in 2026, which would put the fed funds rate between 3.00% and 3.25% by the end of next year.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
