The United States Supreme Court says it will hear arguments over President Donald Trump’s efforts to remove Federal Reserve Governor Lisa Cook from her post. The court’s announcement means Cook will stay in the job for now.
The high court announced the decision on Wednesday.
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The White House has been trying to remove Cook in the first-ever bid by a president to fire a Fed official, an unprecedented challenge to central bank independence.
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The justices declined to immediately decide a Department of Justice request to put on hold a judge’s order temporarily blocking the Republican president from removing Cook, an appointee of Democratic former President Joe Biden, while litigation over the termination continues in a lower court.
The justices said they would hear the case in January.
In creating the Fed in 1913, Congress passed a law called the Federal Reserve Act, which included provisions to shield the central bank from political interference, such as allowing governors to be removed by a president only “for cause”, although the law does not define the term or establish procedures for removal. The law has never been tested in court.
Washington, DC-based US District Judge Jia Cobb on September 9 ruled that Trump’s claims that Cook committed mortgage fraud before taking office, which Cook denies, likely were not sufficient grounds for removal under the Federal Reserve Act.
Trump on August 25 said he was removing Cook from the Fed’s Board of Governors, citing allegations that before joining the central bank in 2022, she falsified records to obtain favourable terms on a mortgage. Her term is set to expire in 2038.
Cook, the first Black woman to serve as a Fed governor, sued Trump soon after. Cook has said the claims made by Trump against her did not give the president the legal authority to remove her and were a pretext to fire her for her monetary policy stance.
The US Court of Appeals for the District of Columbia Circuit in a 2-1 ruling on September 15 denied the administration’s request to put Cobb’s order on hold.
Expansive view of presidential powers
In a series of decisions in recent months, the Supreme Court has allowed Trump to remove members of various federal agencies that Congress had established as independent from direct presidential control despite similar job protections for those posts. The decisions suggest that the court, which has a 6-3 conservative majority, may be ready to jettison a key 1935 precedent that preserved these protections in a case that involved the US Federal Trade Commission.
But the court has signalled that it could treat the Fed as distinct from other executive branch agencies, noting in May in a case involving Trump’s dismissal of two Democratic members of federal labour boards that the Fed “is a uniquely structured, quasi-private entity” with a singular historical tradition.
Trump’s bid to fire Cook reflects the expansive view of presidential power he has asserted since returning to office in January. As long as the president identifies a cause for removal, Cook’s sacking is within his “unreviewable discretion”, the Department of Justice said in a September 18 filing to the Supreme Court.
“Put simply, the President may reasonably determine that interest rates paid by the American people should not be set by a Governor who appears to have lied about facts material to the interest rates she secured for herself – and refuses to explain the apparent misrepresentations,” the filing stated.
Cook’s lawyers told the Supreme Court on September 25 that granting Trump’s request, “would eviscerate the Federal Reserve’s longstanding independence, upend financial markets and create a blueprint for future presidents to direct monetary policy based on their political agendas and election calendars”.
A group of 18 former US Federal Reserve officials, Treasury secretaries and other top economic officials who served under presidents from both parties also urged the Supreme Court not to let Trump fire Cook.
The group included the past three Fed chairs, Janet Yellen, Ben Bernanke and Alan Greenspan. In a brief to the court, they wrote that allowing this dismissal would threaten the Fed’s independence and erode public confidence in it.
Cook took part in the Fed’s highly anticipated two-day meeting in Washington, DC, in September, at which the central bank decided to cut interest rates by a quarter of a percentage point as policymakers responded to concerns about weakness in the job market. Cook was among those voting in favour of the cut.
Pressure on Fed
Concerns about the Fed’s independence from the White House in setting monetary policy could have a ripple effect throughout the global economy.
The case has ramifications for the Fed’s ability to set interest rates without regard to the wishes of politicians, widely seen as critical to any central bank’s ability to function independently and carry out tasks such as keeping inflation under control.
Trump this year has demanded that the Fed cut rates aggressively, berating Fed Chair Jerome Powell for his stewardship over monetary policy as the central bank focused on fighting inflation. Trump has called Powell a “numbskull,” “incompetent” and a “stubborn moron”.
