Trump bid to fire Fed Governor Lisa Cook set for arguments

The Supreme Court is set to hear oral arguments Wednesday morning in the case over whether President Donald Trump has the authority to fire Federal Reserve Governor Lisa Cook over unindicted allegations that she committed mortgage fraud.

At stake is not just the fate of Cook, who has denied any wrongdoing, but potentially the Fed’s future independence in setting monetary policy without the risk that a president could easily remove a governor who doesn’t follow his orders on the issue.

Fed Chair Jerome Powell’s recent announcement that he is subject to a criminal investigation by the U.S. Attorney’s Office in Washington, D.C., in connection with his oversight of the multibillion-dollar renovation of the central bank’s headquarters there underscores these risks.

Powell, who plans to attend Supreme Court arguments on Wednesday, said the real reason for this investigation is that the Fed kept interest rates steady for much of last year, despite Trump’s anger.

Cook was one of the Fed chairmen who supported Powell maintaining those rates.

When Trump moved to fire Cook in late August (the first time a president had made such an attempt), there was speculation that it was because Trump had refused to cut interest rates as he had requested.

If Cook and Powell are removed from the Fed’s seven-member board, Trump would be able to appoint a majority of that board and, at least theoretically, have more influence over interest rate decisions.

While Trump said he would fire Cook, he did not mention Cook’s stance on interest rates.

Instead, the president cited allegations from Federal Housing Finance Director Bill Pulte that he made false statements when applying for home mortgages; This was before he was appointed to the Fed by then-President Joe Biden to fill an unexpired board term in 2022.

Cook, the first Black woman to serve on the Fed board, was reappointed by Biden for a 14-year term in 2023.

Under the Federal Reserve Act of 1913, only the president can terminate a Fed board member, and a director like Cook can only be removed “for cause.”

The law does not elaborate on what would constitute “cause,” but cause has historically been understood as misconduct or dereliction of duty.

After Cook sued to block Trump’s removal from the Fed, a federal District Court judge in Washington ruled that Trump could remain at the central bank pending the outcome of his case.

“Cook has made a strong case that his dismissal was in violation of the ‘due action’ provision of the Federal Reserve Act,” Judge Jia Cobb wrote in that decision.

Cobb said the “best reading” of that provision is that the alleged reason for impeachment relates to actions the governor took “while in office.”

The allegations against Cook relate to actions he took before joining the Fed.

The Justice Department unsuccessfully appealed Cobb’s decision. The Department of Justice then asked the Supreme Court to take up the case.

The Justice Department said in a filing that the “determination of cause” for termination is subject to the “non-reviewable discretion of the President.”

“In any case, the President has identified sufficient reason here,” the file states.

“The fact that the Federal Reserve Board plays a uniquely important role in the American economy only heightens the interest of the government and the public in ensuring that an ethically compromised member does not continue to exercise its broad powers,” the filing states.

“Simply put, the President may reasonably determine that the interest rates paid by the American people should not be determined by a Governor who has lied about material facts about the interest rates he has secured for himself and has refused to explain the apparent misrepresentation,” the filing said.

All three living former Fed chairmen — Alan Greenspan, Ben Bernanke and Janet Yellen — along with a group of former Treasury secretaries, the chairmen of the White House Council of Economic Advisers and others, signed a legal brief with the Supreme Court opposing Cook’s removal.

The summary notes that Congress “intentionally” designed the Fed “to be a uniquely independent entity, largely insulated from political pressures that might otherwise prioritize short-term economic gain over long-term stability and growth.”

“Immediate granting of the government’s request to remove Governor Cook from the Board would overturn long-standing protections and the essential functions they serve,” the brief reads. “Doing so would expose the Federal Reserve to political influences, thereby eroding public confidence in the Fed’s independence and jeopardizing the credibility and effectiveness of U.S. monetary policy.”