The president and the Fed have been on a collision course for months. At 8:02pm ET last night, the crash took place, as Trump said he was firing Cook for alleged false claims in her mortgage applications four years ago.

Why it matters: Cook says she will fight what she and her lawyers characterize as an illegal attempt to fire her, setting up a legal battle royale over who is really in charge of the world's most important central bank.

• Is it the governors appointed to lengthy, staggered terms meant to assure a measure of political independence, or is it any president willing to cast aside rules and norms established over more than a century?
• Even though it only concerns an attempt to fire one governor out of seven, for believers in central bank independence, the litigation that results from this is for all the marbles.

Between the lines: If the president can fire Cook for the allegations involving some old mortgage applications that she has thus far had no legal recourse to address, he can fire pretty much anyone.

• It could, wrote Evercore ISI's Krishna Guha and Marco Casiraghi, establish a precedent that the president "has substantial discretion to determine what meets the 'for cause' standard for removal in the future."
• If Trump succeeds, it will smooth the path for him to install a majority of appointees atop the Fed board sooner rather than later.
• A majority on the board could, in turn, seek to replace presidents of Federal Reserve banks and cast aside some of the guardrails meant to keep those appointments insulated from politics.

State of play: As Cook's legal team and the Fed's in-house lawyers grapple with the issues involved, the question of what comes next is messy.

• For example, consider a question we don't know the answer to as this newsletter is sent: Is Cook currently a Fed governor? Does she have access to her office and email account? If there were a Fed policy meeting today, would she be in it?
• We asked a Fed spokesperson about Cook's status both last night and this morning and have not yet received an answer.
• Trump ally James Fishback said on X last night that "if [Fed chair] Jerome Powell allows Lisa Cook in the building" after Trump's firing, "he's complicit."

What's next: Cook is likely to seek a stay on Trump's firing from the courts, but how the court may rule on whether she can remain in office while the issue is litigated is unknown.

Of note: The Fed's next policy meeting starts three weeks from today. It appears likely to cut interest rates — though a mere quarter-point, not to the radically lower borrowing costs Trump seeks.

The United States seems to be speedrunning toward the kind of economic governance seen in countries like Argentina and Turkey, with central banks more directly under the thumb of political leadership.

• Financial markets appear mostly unperturbed. The S&P 500 was flat as of 11am ET.

Yes, but: There's a little more evidence that bond markets see a potential shift in how the Fed will set policy. The yield curve steepened, which would make sense if you believe the Fed will cut rates more aggressively in the near term but tolerate higher inflation in the long run.

• That said, the moves were modest.

By the numbers: The two-year Treasury yield, sensitive to the near-term Fed policy decisions, was down 0.04 percentage point this morning. The 30-year Treasury was up 0.04 point.

• While those swings aren't massive and long-term borrowing costs remain below 5%, they are consistent with a world in which the central bank is a little more reactive to political imperatives.

Of note: The muted moves may reflect market belief that Cook will prevail in her battle to stay on the board — a legal result that would harden the Fed's independence safeguard.

• On Polymarket this morning, betting contracts only put 34% odds on Cook being out as a Fed governor by the end of the year.