A case that could provide the Trump administration with new and expansive power over the traditionally independent Federal Reserve focused Friday on what would constitute “cause” to remove a high-ranking official at the nation’s central bank.

Federal Reserve Governor Lisa Cook has requested an emergency injunction—in the form of a temporary restraining order—to block President Donald Trump’s attempt to fire her over allegations that she committed mortgage fraud when she purchased a home and condo in 2021. She was appointed to the Fed’s board by former president Joe Biden in 2022.

Arguments in court Friday centered on what constitutes “cause,” which in this case are unproven accusations by a Trump appointee that Cook committed mortgage fraud.

In an exchange with U.S. District Judge Jia Cobb, Cook’s lawyer, Abbe David Lowell, said Trump’s motivations are clear. “He’s already said he wants a majority (on the Fed board). He’s bragged that he’s going to get it.’’

If her firing is allowed to stand, it would likely erode the Fed’s longstanding independence from day-to-day politics. No president has ever fired a Fed governor in the agency’s 112-year history. Economists broadly support Fed independence because it makes it easier for the central bank to take unpopular steps such as raising interest rates to combat inflation.

Cook has asked the court to issue an emergency order that would prevent her firing and enable Cook to remain on the seven-member board of governors while her lawsuit seeking to overturn the firing makes its way through the courts. Many observers expect her case will end up at the U.S. Supreme Court.

In court Friday, the Justice Department’s Yaakov Roth, who represented the Trump administration at the hearing, complained that Cook had not offered an explanation for anything questionable in her mortgage documents or a defense against the fraud allegations.

The allegations remain just that, leveled by Bill Pulte, Trump’s appointee to the agency that oversees mortgage giants Fannie Mae and Freddie Mac.

And late Thursday, Pulte, said that Cook had allegedly committed fraud on a third property, a condominium in Cambridge, Massachusetts, in April 2021.

Pulte said in a social media post that Cook classified the condo as a “second home,” but in financial disclosure documents filed in 2022 through 2025 with the government, she described it as an “investment/rental” property. Pulte added that mortgage rates and down payments for second homes can be lower than for investment properties.

Pulte also alleged, without evidence, that Cook may have rented out two properties in Ann Arbor, Mich. and Atlanta, which were the focus of a criminal referral he made last week and which he said she has claimed as her principal residence.

In a statement, Cook’s lawyer, Lowell, decried “an obvious smear campaign aimed at discrediting Gov. Cook … Nothing in these vague, unsubstantiated allegations has any relevance to Gov Cook’s role at the Federal Reserve, and they in no way justify her removal from the Board.”

The law governing the Fed says the president can’t fire a governor just because they disagree over interest rate policy. Trump has repeatedly demanded that the Fed, led by Chair Jerome Powell, reduce its key interest rate, which is currently 4.3%. Yet the Fed has kept it unchanged for the last five meetings.

But the president may be able to fire a Fed governor “for cause,” which has traditionally been interpreted to mean inefficiency, neglect of duty, or malfeasance. Cook’s lawyers argue that it also refers only to conduct while in office. They also say that she was entitled to a hearing and an opportunity to rebut the charges.

“The unsubstantiated and unproven allegation that Governor Cook ‘potentially’ erred in filling out a mortgage form prior to her Senate confirmation — does not amount to ‘cause,’” the lawsuit says.

Trump has moved to fire a number of leaders from a host of independent federal regulatory agencies, including at the National Transportation Safety Board, Surface Transportation Board, Equal Employment Opportunity Commission, and Nuclear Regulatory Commission, as well as the Fed.

The Supreme Court declined to temporarily block the president from firing directors of some independent agencies earlier this year while those cases move through the courts. Legal experts say the high court this year has shown more deference to the president’s removal powers than it has in the past.

Still, in a case in May, the Supreme Court appeared to single out the Fed as deserving of greater independence than other agencies, describing it as “a uniquely structured, quasi-private entity.” As a result, it’s harder to gauge how the Supreme Court could rule if this case lands in its lap.

As a governor, Cook votes on all the Fed’s interest rate decisions and helps oversee bank regulation. The Fed has substantial power over the economy by raising or cutting its key interest rate, which can then influence a broad range of other borrowing costs, including mortgages, car loans, and business loans.

Pulte’s charge that Cook has committed mortgage fraud is one he has also made against two of Trump’s biggest political enemies, California Democratic Sen. Adam Schiff and New York Attorney General Letitia James, who has prosecuted Trump. Pulte has ignored a similar case involving Ken Paxton, the Texas attorney general who is friendly with Trump and is running for Senate in his state’s Republican primary.

Cook’s lawsuit responds by arguing that the claims are just a pretext “in order to effectuate her prompt removal and vacate a seat for President Trump to fill and forward his agenda to undermine the independence of the Federal Reserve.”

If Trump can replace Cook, he may be able to gain a 4-3 majority on the Fed’s governing board. Trump appointed two board members during his first term and has nominated a key White House economic adviser, Stephen Miran, to replace Adriana Kugler, another Fed governor who stepped down unexpectedly Aug. 1. Trump has said he will only appoint people to the Fed who will support lower rates.

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The Federal Reserve’s preferred inflation gauge mostly held steady last month despite President Donald Trump’s broad-based tariffs, but a measure of underlying inflation increased.

Prices rose 2.6% in July compared with a year ago, the Commerce Department said Friday, the same annual increase as in June. Excluding the volatile food and energy categories, prices rose 2.9% from a year earlier, up from 2.8% in the previous month and the highest since February.

The figures illustrate why many officials at the Federal Reserve have been reluctant to cut their key interest rate. While inflation is much lower than the roughly 7% peak it reached three years ago, it is still running noticeably above the Fed’s 2% target.

At the same time, the report showed that consumer spending picked up last month and could boost economic growth, which weakened considerably in the first six months of the year.

On a monthly basis, consumer prices rose 0.2% from June to July, down from 0.3% the previous month, while core prices increased 0.3% for the second month in a row.

The figures are similar to those reported earlier this month in the more widely-followed consumer price index, which has risen 2.7% from a year ago. The core CPI increased 3.1% in July compared with a year earlier.

Separately, the Friday report showed that consumer spending jumped 0.5% in July, the biggest increase since March and a sign that many Americans are still willing to open their wallets despite high interest rates and uncertainty surrounding the direction of the economy. Spending jumped sharply for long-lasting goods such as cars, appliances and furniture, many of which are imported.

Incomes rose 0.4% from June to July, boosted by a healthy gain in wages and salaries, the report showed.

Fed Chair Jerome Powell has said the central bank will likely cut its key rate at its meeting next month. But policymakers are expected to proceed cautiously and it’s not clear how many more rate cuts will happen this year.

When the Fed reduces its key rate, it often — though not always — lowers borrowing costs for things like mortgages, car loans, and business borrowing.

Trump has relentlessly pushed Powell and the Fed for lower interest rates since earlier this year, calling Powell “Too Late” and a “moron” and arguing that there is “no inflation.” On Monday he sought to fire Lisa Cook, a member of the Fed’s governing board in an effort to gain greater control over the central bank.

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Now that Federal Reserve Chair Jerome Powell has signaled that the central bank could soon cut its key interest rate, he faces a new challenge: how to do it without seeming to cave to the White House’s demands.

For months, Powell has largely ignored President Donald Trump’s constant hectoring that he reduce borrowing costs. Yet on Friday, in a highly-anticipated speech, Powell suggested that the Fed could take such a step as soon as its next meeting in September.

It will be a fraught decision for the Fed, which must weigh it against persistent inflation and an economy that could also improve in the second half of this year. Both trends, if they occur, could make a cut look premature.

Trump has urged Powell to slash rates, arguing there is “no inflation” and saying that a cut would lower the government’s interest payments on its $37 trillion in debt.

Powell, on the other hand, has suggested that a rate cut is likely for reasons quite different than Trump’s: He is worried that the economy is weakening. His remarks on Friday at an economic symposium in Grand Teton National Park in Wyoming also indicated that the Fed will move carefully and cut rates at a much slower pace than Trump wants.

Powell pointed to economic growth that “has slowed notably in the first half of this year,” to an annual rate of 1.2%, down from 2.5% last year. There has also been a “marked slowing” in the demand for workers, he added, which threatens to raise unemployment.

Still, Powell said that tariffs have started to lift the price of goods and could continue to push inflation higher, a possibility Fed officials will closely monitor and that will make them cautious about additional rate cuts.

The Fed’s key short-term interest rate, which influences other borrowing costs for things like mortgages and auto loans, is currently 4.3%. Trump has called for it to be cut as low as 1% — a level no Fed official supports.

However the Fed moves forward, it will likely do so while continuing to assert its longstanding independence. A politically independent central bank is considered by most economists as critical to preventing inflation, because it can take steps — such as raising interest rates to cool the economy and combat inflation — that are harder for elected officials to do.

There are 19 members of the Fed’s interest-rate setting committee, 12 of whom vote on rate decisions. One of them, Beth Hammack, president of the Federal Reserve’s Cleveland branch, said Friday in an interview with The Associated Press that she is committed to the Fed’s independence.

“I’m laser focused … on ensuring that I can deliver good outcomes for the for the public, and I try to tune out all the other noise,” she said.

She remains concerned that the Fed still needs to fight stubborn inflation, a view shared by several colleagues.

“Inflation is too high and it’s been trending in the wrong direction,” Hammack said. “Right now I see us moving away from our goals on the inflation side.”

Powell himself did not discuss the Fed’s independence during his speech in Wyoming, where he received a standing ovation by the assembled academics, economists, and central bank officials from around the world. But Adam Posen, president of the Peterson Institute for International Economics, said that was likely a deliberate choice and intended, ironically, to demonstrate the Fed’s independence.

“The not talking about independence was a way of trying as best they could to signal we’re getting on with the business,” Posen said. “We’re still having a civilized internal discussion about the merits of the issue. And even if it pleases the president, we’re going to make the right call.”

It was against that backdrop that Trump intensified his own pressure campaign against another top Fed official.

Trump said he would fire Fed Governor Lisa Cook if she did not step down from her position. Bill Pulte, a Trump appointee to head the agency that regulates mortgage giants Fannie Mae and Freddie Mac, alleged Wednesday that Cook committed mortgage fraud when she bought two properties in 2021. She has not been charged.

Cook has said she would not be “bullied” into giving up her position. She declined Friday to comment on Trump’s threat.

If Cook is somehow removed, that would give Trump an opportunity to put a loyalist on the Fed’s governing board. Members of the board vote on all interest rate decisions. He has already nominated a top White House economist, Stephen Miran, to replace former governor Adriana Kugler, who stepped down Aug. 1.

Trump had previously threatened to fire Powell, but hasn’t done so. Trump appointed Powell in late 2017. His term as chair ends in about nine months.

Powell is no stranger to Trump’s attacks. Michael Strain, director of economic policy studies at the American Enterprise Institute, noted that the president also went after him in 2018 for raising interest rates, but that didn’t stop Powell.

“The president has a long history of applying pressure to Chairman Powell,” Strain said. “And Chairman Powell has a long history of resisting that pressure. So it would be odd, I think, if on his way out the door, he caved for the first time.”

Still, Strain thinks that Powell is overestimating the risk that the economy will weaken further and push unemployment higher. If inflation worsens while hiring continues, that could force the Fed to potentially reverse course and increase rates again next year.

“That would do further damage to the Fed’s credibility around maintaining low and stable price inflation,” he said.

This story was originally featured on Fortune.com

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