Trump Moves to Fire Fed’s Cook

2-year yields drop on potential Cook removal, strong Treasury auction. Short-dated UST yields dropped and longer-dated yields rose at the market open on news that Trump moved to fire Fed Governor Cook. The decline at the front end was largely driven by speculation that her replacement is likely to be a more dovish voter, while the strongest $69B 2-year auction since December also contributed. Meanwhile, longer-dated yields rose as Cook’s removal created some doubt about Fed independence and potential inflation risks, The 2-year yield closed 4 bps lower at 3.68% while the 30-year yield closed 3 bps higher at 4.92%.

Legal battle ensues as Trump attempts to remove Cook. On Monday night, President Trump posted a letter announcing that he had “sufficient cause” to fire Fed Governor Lisa Cook immediately, citing mortgage fraud allegations. Cook’s lawyer, Abbe Lowell, countered the statement, asserting that “His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis.” Cook has said that she intends to sue over the “illegal firing” and further pushed back against Trump, stating, “I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022.” The Fed followed with a seemingly neutral statement, committing to “abide by any court decision” that comes.

Business orders exceed expectations. Core capital goods, which excludes military and aircraft equipment, were up 1.1% MoM in July, beating estimates of 0.2% and improving on June’s revised 0.6% decline. Headline durable goods were down 2.8% monthly (versus -3.8% expected), where the drop was partially driven by a decrease in Boeing orders. The data reflected an extended period of slow durables orders after firms front-loaded imports earlier in the year to avoid paying tariffs imposed by the US. Many expect capital spending to remain soft through the end of the year but to pick up in 2026 as firms look to utilize tax provisions passed under the Big Beautiful Bill.