In DC: Drama at the Fed as official fired by Trump sues to stay 

Four days after President Donald Trump announced his intent to fire Federal Reserve Governor Lisa Cook over mortgage fraud allegations, her future with the central bank remains uncertain.  Cook responded with a lawsuit, and a judge is now considering her request for a preliminary injunction while the matter plays out in court.

Elsewhere in Washington, D.C., the Federal Housing Finance Agency (FHFA) is allowing Rocket Companies' acquisition of Mr. Cooper to proceed, and the Consumer Financial Protection Bureau (CFPB) is moving toward less supervision of nonbanks.

Cook sues to keep her job

On Aug. 28, Cook sued Trump, Fed Chair Jerome Powell and the Fed Board of Governors. The lawsuit challenges "Trump's unprecedented and illegal attempt to remove Governor Cook from her position which, if allowed to occur, would [be] the first of its kind in the Board's history," the filing stated.

 One day later, Cook's attorney, Abbe Lowell, and a Department of Justice lawyer argued before Judge Jia Cobb over whether Cook should be permitted to stay in her role at the Fed while her lawsuit moves forward. Much of their debate involved defining "for cause" — and if Trump had cause to remove Cook, according to CNBC. The hearing ended without a ruling.

 Trump announced in an Aug. 25 Truth Social post that he was terminating Cook in light of a criminal referral sent by FHFA Director Bill Pulte to the DOJ. The referral suggested Cook may have committed mortgage fraud in connection with her purchase of homes in Michigan and Georgia prior to her arrival at the Fed in 2022. Cook's term on the Board of Governors isn't set to end until 2038.

Shortly after Cook filed her lawsuit, Pulte sent a second criminal referral to the DOJ raising new allegations of mortgage fraud in connection with a condominium in Massachusetts.

Cook responded to the president's move with a statement that said "no cause exists under law" for her firing and that she "will not resign."

A threat to Fed independence?

Many economic experts have raised concerns about how Trump's unprecedented firing of a Fed official could threaten the central bank's independence — and potentially lead to higher inflation.

"The structure of the Federal Reserve is such that it's designed to have independent policymakers who are making decisions; longer decisions affect the economy over the longer term, away from short-term political pressure," New York Fed President John Williams said during an Aug. 27 interview on CNBC's "Squawk Box." "I think that's really, really important."

Since taking office in January, Trump has frequently urged the Fed to lower short-term interest rates, and he and Pulte have both called for Powell to resign. If Cook leaves, Trump nominees would gain a majority on the Fed's Board of Governors — a shift Trump acknowledged during an Aug. 26 Cabinet meeting when he said, "We will have a majority very shortly."

In the meantime, a September rate cut seems likely in the wake of Powell's Jackson Hole Economic Symposium speech last week. Fed Governor Christopher Waller, who has pushed for rate cuts previously, urged a cut of 25 basis points while speaking at the Economic Club of Miami on Aug. 28.

FHFA OKs Rocket's acquisition of mortgage rival

Nearly five months after Rocket Companies announced its plan to acquire Mr. Cooper, the FHFA has cleared the way for the deal to proceed.

The approval was granted "subject to appropriate conditions to ensure the ongoing safety and soundness of Fannie Mae and Freddie Mac," the federal agency said on Aug. 26. The FHFA then clarified: "No market participant should have greater than 20% of Fannie or Freddie's servicing market in order to ensure the safety and soundness of the mortgage market and the overall economy."

Rocket announced the $9.4 billion acquisition in late March — just a few weeks after the mortgage lender acquired Redfin for $1.75 billion. At the time, Rocket said acquiring Mr. Cooper would provide "a combined servicing book of $2.1 trillion across nearly 10 million clients, representing one in every six mortgages in America."

CFPB suggests new 'risks to consumers' definition

The CFPB has proposed the adoption of a standard definition for "risks to consumers" in its supervision of nonbanks. "This will ensure that the Bureau acts within the bounds of its statutory authority and provide clarity to institutions about the standard the Bureau applies," according to the proposal published on Aug. 26 in the Federal Register.

If accepted, the change would narrow the CFPB's focus on misconduct in its nonbank supervision. Feedback on the proposal will be accepted through Sept. 25.