US judge blocks Trump's attempt to remove Fed governor Lisa Cook

A federal judge has temporarily blocked US President Donald Trump's attempt to fire Federal Reserve governor Lisa Cook, allowing her to remain in the job for now.

The decision on Tuesday night is a blow to Mr Trump, who moved to sack Ms Cook on August 25 following allegations that she had committed mortgage fraud. She has yet to be charged with a crime and the Department of Justice opened a criminal investigation last week.

“The public interest in Federal Reserve independence weighs in favour of Cook’s reinstatement,” Judge Jia Cobb wrote in her ruling on Tuesday. The US Supreme Court is expected to have the final say.

The court order temporarily blocking Mr Trump's attempt to fire Federal Reserve Governor Lisa Cook. Photo: US District Court, District of Columbia

Federal Reserve officials can only be fired "for cause”, which is most consider to be malfeasance or neglect of duty. No Fed official has been fired before Ms Cook.

“The best reading of the ‘for cause’ provision is that the bases for removal of a member of the board of governors are limited to grounds concerning a governor’s behaviour in office and whether they have been faithfully and effectively executing their statutory duties,” Ms Cobb wrote.

Abbe Lowell, Ms Cook's lawyer, said the court's ruling upholds the Federal Reserve's independence from political interference.

“Allowing the president to unlawfully remove Ms Cook on unsubstantiated and vague allegations would endanger the stability of our financial system and undermine the rule of law,” Mr Lowell said in a statement. “She will continue to carry out her sworn duties as a Senate-confirmed board governor.”

Ms Cook maintains she has never committed mortgage fraud. She filed a lawsuit against Mr Trump last week after he moved to fire her, arguing that he has no authority to do so.

The Federal Reserve decline to comment and has previously said it would abide by the court's decision.

The White House holds that Ms Cook was fired for cause.

"This ruling will not be the last say on the matter, and the Trump administration will continue to work to restore accountability and confidence in the Fed,” White House spokesman Kush Desai said in a statement.

Mr Trump has embarked on an unprecedented attack campaign on the Federal Reserve since returning to the White House this year, growing increasingly angry at the US Central Bank for not cutting interest rates.

Those attacks have involved repeated condemnations of Fed chair Jereme Powell a visit of the Federal Reserve's headquarters in Washington, appointing his leading economic ally to fill a vacant seat on the Fed's board of governors, and culminating in his attempt to remove Ms Cook.

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The Supreme Court signalled this year that the Trump administration's reasoning for firing officials at other agencies does not apply to the Fed, although the court allowed Mr Trump earlier on Tuesday to fire the head of Federal Trade Commission.

The Federal Reserve is a quasi-private agency, meaning it is a hybrid between the private and public sector.

The rate-setting Federal Open Market Committee consists of seven members of the Fed board, including the Fed chairman, the New York Fed president, and four of the remaining 11 Fed districts who serve rotating one-year terms.

Four reasons global stock markets are falling right now

There are many factors worrying investors right now and triggering a rush out of stock markets. Here are four of the biggest:

1. Rising US interest rates

The US Federal Reserve has increased interest rates three times this year in a bid to prevent its buoyant economy from overheating. They now stand at between 2 and 2.25 per cent and markets are pencilling in three more rises next year.

Kim Catechis, manager of the Legg Mason Martin Currie Global Emerging Markets Fund, says US inflation is rising and the Fed will continue to raise rates in 2019. “With inflationary pressures growing, an increasing number of corporates are guiding profitability expectations downwards for 2018 and 2019, citing the negative impact of rising costs.”

At the same time as rates are rising, central bankers in the US and Europe have been ending quantitative easing, bringing the era of cheap money to an end.

2. Stronger dollar

High US rates have driven up the value of the dollar and bond yields, and this is putting pressure on emerging market countries that took advantage of low interest rates to run up trillions in dollar-denominated debt. They have also suffered capital outflows as international investors have switched to the US, driving markets lower. Omar Negyal, portfolio manager of the JP Morgan Global Emerging Markets Income Trust, says this looks like a buying opportunity. “Despite short-term volatility we remain positive about long-term prospects and profitability for emerging markets.”

3. Global trade war

Ritu Vohora, investment director at fund manager M&G, says markets fear that US President Donald Trump’s spat with China will escalate into a full-blown global trade war, with both sides suffering. “The US economy is robust enough to absorb higher input costs now, but this may not be the case as tariffs escalate. However, with a host of factors hitting investor sentiment, this is becoming a stock picker’s market.”

4. Eurozone uncertainty

Europe faces two challenges right now in the shape of Brexit and the new populist government in eurozone member Italy.

Chris Beauchamp, chief market analyst at IG, which has offices in Dubai, says the stand-off between between Rome and Brussels threatens to become much more serious. "As with Brexit, neither side appears willing to step back from the edge, threatening more trouble down the line.”

The European economy may also be slowing, Mr Beauchamp warns. “A four-year low in eurozone manufacturing confidence highlights the fact that producers see a bumpy road ahead, with US-EU trade talks remaining a major question-mark for exporters.”