Futures for the S&P 500 dipped 0.14%, and the 10-year Treasury yield rose 2 basis points to $.295% as bonds sold off. The dollar fell 0.09% against the euro and 0.06% against the yen.

As investors grow concerned over the Fed making political rather than economic decisions, they will demand higher yields on bonds and further question the status of the dollar as the world’s top reserve currency.

“Pursuant to my authority under Article II of the Constitution of the United States and the Federal Reserve Act of 1913, as amended, you are hereby removed from your position on the Board of Governors of the Federal Reserve, effective immediately,” Trump wrote in a letter posted on his Truth Social account.

Cook responded in a statement, saying “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 that she will not resign and “will continue to carry out my duties to help the American economy as I have been doing since 2022.”

Since returning to the White House, Trump has demanded that the Fed cut rates and routinely insults Chair Jerome Powell for not doing so. After Trump flirted with firing him, he later backed off, though he still made an issue of overruns at the Fed’s headquarters renovation..

Then last week, Trump threatened to fire Cook if she didn’t resign, after an administration housing official accused her of mortgage fraud. Cook said last week she wouldn’t be bullied into stepping down and vowed to rebut the accusations.

A dispute over a president’s ability to remove a Fed governor appears headed eventually for the Supreme Court.

Earlier this year, the high court said Fed officials have a special status that shields them from being sacked unless it’s “for cause,” which has previously been interpreted to mean malfeasance or dereliction of duty.

Meanwhile, Fed officials will likely circle the wagons as they seek to protect the central bank, which is not only a pillar of U.S. financial markets but for the world as well.

Powell’s term as chairman expires in May, but his term as a governor extends until 2028. While predecessors traditionally have stepped down from the board when their time as chair ended, Powell may feel obligated to stay on and protect the Fed’s independence now that Trump is seeking to oust Cook.

It may also prompt other governors to serve until a president from their same political party is in the White House rather than step down early, making the Fed more like the Supreme Court in that regard.

Trump has already named Stephen Miran, chair of the White House’s Council of Economic Advisers, to fill a vacancy on the board left by Adriana Kugler, who left before her term was due to expire in January.

He has backed Trump’s call for lower rates. More notably, Miran also cowrote a paper in 2024 calling for an overhaul of the Fed that reduces its independence.

Analysts at JPMorgan have even warned that Miran’s appointment represents an “existential threat” to the Fed as it signals an intention to amend the Federal Reserve Act and alter the central bank’s authority.

It’s not clear if Miran will be reappointed to the Fed board as the White House looks for someone to replace Powell as chairman. But either way, the Fed will have three Trump-appointed governors.

And if Trump is able to name a fourth governor, that would tip the balance on the seven-member board. That’s not enough to sway rate decisions on the 12-member Federal Open Market Committee, but as Axios recently pointed out, a board majority would give Trump appointees power over the Fed’s budget, staffing, and even selection of regional Fed presidents.

Those presidents are appointed by directors of the regional Fed banks, but they are subject to the approval of the board. And in February, the five-year terms for all the bank presidents are scheduled to expire.

With Trump crossing into uncharted territory in his assault on the Fed, any effort to get a new Fed nominee confirmed by the Senate will now become an all-out battle.

“The illegal attempt to fire Lisa Cook is the latest example of a desperate President searching for a scapegoat to cover for his own failure to lower costs for Americans,” Sen. Elizabeth Warren, ranking Democrat on the Senate Banking, Housing, and Urban Affairs Committee, said in a statement on Monday night.

“It’s an authoritarian power grab that blatantly violates the Federal Reserve Act, and must be overturned in court.”