US Supreme Court appears reluctant to let Trump fire Fed’s Lisa Cook

By Andrew Chung, John Kruzel and David Lawder

WASHINGTON, Jan 21 (Reuters) – Conservative and liberal U.S. Supreme Court justices signaled skepticism on Wednesday about President Donald Trump’s bid to remove Federal Reserve Governor Lisa Cook in a case where the central bank’s independence is at stake.

During nearly two hours of arguments in the case, the justices indicated they were unlikely to grant the Trump administration’s request to vacate the judge’s order blocking the Republican president from immediately firing Cook.

Some of the justices pressed D. John Sauer, the U.S. attorney general who defended the Trump administration, about why Cook had not been given a chance to formally respond to unproven allegations of mortgage fraud that the president has cited as grounds for oust Cook — which he has denied. They also expressed concern about the impact removing a central bank chairman would have on the economy and the Fed’s independence, which it values ​​over political influence.

The case represents the latest dispute before the top US judicial body over Trump’s expansive view of presidential powers since he took office 12 months ago.

The court, with a 6-3 conservative majority, dismissed Cook for now when it agreed to hear the case in October.

Cook, who participated in the discussions, later said in a statement: “This case is about whether the Federal Reserve will set key interest rates based on evidence and independent judgment or succumb to political pressure.”

“As long as I serve on the Federal Reserve, I will defend the principle of political independence while serving the American people,” Cook said.

‘FRAUD OR GROSS NEGLIGENCE’

Sauer told the justices that the allegations against Cook impugned his “conduct, fitness, skill or competence to serve as a director of the Federal Reserve.”

“The American people’s interest rates should not be allowed to be set by someone who is, at best, grossly negligent in obtaining advantageous interest rates for himself,” Sauer said.

Sauer argued that the allegations should be removed immediately, saying, “Fraud or gross negligence by a financial regulator in financial transactions is grounds for removal.” he added.

As Trump pressured the central bank to lower interest rates and harshly criticized Fed Chairman Jerome Powell for not doing so faster, Cook called the allegations against him an excuse to fire him over monetary policy differences.

Conservative Chief Justice John Roberts asked Sauer to clarify whether Cook’s claim that he should be dismissed immediately holds good if the basis for his mortgage claims – his designation of two different properties as primary residences – was “an inadvertent error that conflicts with other documents in the record.”

Even if Cook made a mistake on the mortgage paper, “it was a pretty big mistake,” Sauer said.

Roberts seemed skeptical and told Sauer “we can discuss that.”

Lawyer Paul Clement, defending Cook, told the judges the allegations against Cook stemmed from “at most an inadvertent mistake” in applying for a mortgage on a holiday property.

Trump’s move against Cook is seen as the most significant challenge to the Fed’s independence since the Fed was founded in 1913. No president has ever tried to remove a Fed official.

A Supreme Court decision is expected by the end of June.

‘A MILLION DIFFICULT QUESTIONS’

Conservative Justice Samuel Alito expressed concern that the administration had handled the case “in a very cursory manner.” Although the lawsuit includes Trump’s reasoning for firing Cook, Alito said, “No court has investigated these facts. Are mortgage applications on the record in this case?” he said.

“There are a million difficult questions in this case,” Alito said.

In creating the Fed, Congress passed a law called the Federal Reserve Act intended to protect the central bank from political interference, which included provisions requiring presidents to be removed by a president only “for cause”; but the law does not define the term or establish impeachment procedures.

Clement told the justices that Trump’s stance would turn tenure protections for Fed governors into “employment at will.”

“This doesn’t make any sense,” Clement said. “There is no logical reason to go to all the trouble of creating this unique, quasi-private entity that is exempt from everything from (Congress’s) appropriations process to civil service laws, just to impose on it an impeachment restriction as toothless as the president imagines.”

Roberts expressed skepticism about Sauer’s claims that the president’s claim cannot be reviewed or that judges cannot reinstate a fired officer.

Conservative Justice Brett Kavanaugh expressed skepticism about the real-world impact of the administration’s arguments.

“Your view is that there is no judicial review, there is no due process, there is no remedy available, the bar for litigation that the president alone sets is too low — so it would undermine, if not dismantle, the independence of the Federal Reserve,” Kavanaugh told Sauer.

Conservative Judge Amy Coney Barrett also questioned why the Trump administration denied Cook a hearing to defend himself, saying it “won’t be that big of a deal” if Trump sat down with Cook and laid out the alleged evidence against him.

Barrett also asked Sauer about the practical consequences of allowing Trump to fire a Fed governor.

“We’ve had amicus (friend of the court) briefs from economists saying that if Governor Cook were (fired), it would trigger a recession. How should we consider the public interest in a situation like that?” Barrett asked, adding: “If there is a risk (at this preliminary stage of the case), wouldn’t that require caution on our part?”

Sauer said he was notified of Cook’s termination in August and that it did not affect the markets. In a briefing presented with a “jaundiced eye” in the case supporting Cook, Sauer urged the justices to consider economists’ predictions about the end of the US economy.

U.S. District Judge Jia Cobb ruled in September that Trump’s attempt to remove Cook without notice or a hearing likely violated his right to a fair trial under the Fifth Amendment to the U.S. Constitution. Cobb also found that allegations of mortgage fraud were probably not a legally sufficient reason to remove a Fed governor under the law, noting that the alleged conduct occurred before his Fed tenure.

The U.S. Court of Appeals for the District of Columbia Circuit rejected Trump’s request to suspend Cobb’s order.

‘you are fired’

Conservative and liberal justices fielded sharp questions at Sauer about Cook’s claim that he was not entitled to formal notice and a hearing before being fired by the president.

Conservative Justice Neil Gorsuch asked Sauer what such a hearing would look like and whether Cook would be entitled to legal counsel. Sauer said the court has been very reluctant in the past to “dictate procedures to the president” and that the decision will be up to Trump.

“Calling Ms. Cook into the (White House) Roosevelt Room, sitting at a conference table and listening, I don’t know how long, how much evidence a lawyer needs, and then making a decision? Could that be enough?” Gorsuch asked, adding: “Is it just a meeting at the conference table that ends with ‘You’re fired’?”

Conservative Justice Clarence Thomas asked Sauer on what basis the justices should conclude that the Fed “is an executive branch agency and therefore the president has the authority to impeach.”

“There’s an academic debate about whether the Federal Reserve’s Open Market operations constitute executive power or something else, essentially private management. But Congress has sort of replenished traditional executive powers over the Federal Reserve over the years,” Sauer replied.

As a Fed governor, Cook helps set U.S. monetary policy along with the rest of the central bank’s seven-member board and the presidents of the 12 regional Fed banks. His term will last until 2038. Cook was appointed by Democratic former President Joe Biden in 2022 as the first Black woman to hold the position.

Liberal Justice Ketanji Brown Jackson pressed Sauer to reconcile two seemingly conflicting positions: his assertion that the president has broad discretion to remove a Fed governor and his acknowledgment that Congress included tenure protections for Fed governors to protect the Fed’s independence from White House interference.

“How does this further the purposes of the law?” Jackson asked.

Alito expressed skepticism about Clement’s assertion that the Fed chairman’s behavior before taking office could not provide a basis for impeaching the president, and asked Cook’s lawyer to consider a series of increasingly dire hypothetical scenarios.

“What happens if, after the person takes office, videos are released in which the office holder expresses deep admiration for Hitler or the Klan?” Alito asked.

AGENCY INDEPENDENCE

In previous cases, the Supreme Court has challenged the independence of various federal agencies from presidential control and may soon overrule a key precedent that has protected the heads of independent agencies from removal since 1935.

But the court signaled last year that it might consider the central bank an exception, saying the Fed had a unique structure and historical tradition in its May decision allowing Trump to remove two Democratic members of federal labor boards.

The Supreme Court has backed Trump in a series of emergency rulings since his return to the presidency on immigration, mass federal layoffs, cuts in foreign aid, disbanding the Department of Education and other issues.

The president attempted to fire Cook on August 25 by posting a termination letter on social media citing allegations of mortgage fraud disclosed by Trump-appointed Federal Housing Finance Agency Director Bill Pulte.

The administration launched a criminal investigation into Powell this month over comments he made to Congress last year about the Fed’s construction project; Powell similarly described the move as a pretext aimed at gaining influence over monetary policy.

(Reporting by Andrew Chung; Additional reporting by Jan Wolfe, John Kruzel and David Lawder in Washington and Ann Saphir in San Francisco; Editing by Will Dunham)