The Supreme Court of the United States will hear arguments regarding Lisa Cook’s removal as governor of the Federal Reserve. Cook will continue in his current position until the court’s announcement.
On Wednesday, the high court made the decision public.
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In the first attempt by a president to fire a Fed official, Cook has been attempting to leave, a unprecedented challenge to central bank independence.
While lower court litigation continues over the termination, the justices declined to decide the Department of Justice’s request to put a judge’s temporary suspension of the Republican president’s ability to remove Cook, an appointee of Democratic former president Joe Biden.
The case will be heard in January, according to the justices’ statements.
The Federal Reserve Act, a law passed by Congress in 1913 that protected the central bank from political interference, including allowing governors to be removed by president only “for cause,” despite the law’s definition and procedure for removal. In court, the law has never been put to the test.
On September 9, US District Judge Jia Cobb in Washington, DC, decided that Cook’s claims that he had made mortgage fraud before taking office, which Cook refuted, likely weren’t sufficient grounds for his removal under the Federal Reserve Act.
Trump announced on August 25 that he would appoint Cook to the Fed’s board of directors, citing allegations that she had falsified records to obtain favorable mortgage terms before joining the central bank in 2022. Her term is scheduled to end in 2038.
Soon after, Cook, the first Black woman governor of the Fed, filed a lawsuit against Trump. Cook claimed that Trump’s accusations against her served as a pretext to fire her because of her monetary policy stance.
The administration requested a delay in Cobb’s order, but the US Court of Appeals for the District of Columbia Circuit turned down that request on September 15.
Extensive analysis of presidential powers
Despite similar job protections for those positions, the Supreme Court has ruled in a number of recent decisions that the Supreme Court has allowed Trump to remove from various federal agencies that Congress had established as independent from direct presidential control. The court’s decision suggests that it may be ready to overturn a significant 1935 precedent that preserved these protections in a case involving the US Federal Trade Commission.
The court has since indicated that it can treat the Fed differently from other executive branch branches, noting in May that the Fed “is a uniquely structured, quasi-private entity” with a unique historical tradition in a case involving Trump’s dismissal of two Democratic members of federal labor boards.
Trump’s plan to fire Cook is a result of his broad assertions about presidential authority since he took office in January. Cook is given an “unreviewable discretion” as long as there is a cause for removal, according to the Department of Justice in a filing to the Supreme Court on September 18.
The filing stated that “the President may reasonably determine that a Governor who appears to have lied about facts relevant to the interest rates she secured for herself and who declines to explain the apparent lies.”
According to Cook’s attorneys, granting Trump’s request “would eviscerate the Federal Reserve’s longstanding independence, upend financial markets, and establish a blueprint for upcoming presidents to direct monetary policy based on their political agendas and election calendars,” according to Cook’s lawyers’ statement to the Supreme Court on September 25.
A group of 18 former US Federal Reserve officials, Treasury secretaries, and other top economic figures who served under both parties’ presidents urged the Supreme Court to stop Donald Trump from firing Cook.
Janet Yellen, Ben Bernanke, and Alan Greenspan, the previous three Fed chairs, were also present. They claimed in a brief to the court that allowing this dismissal would undermine public trust in the Fed and threaten its independence.
In September, the Fed convened its highly anticipated two-day meeting in Washington, DC, where the central bank decided to cut interest rates by a quarter of a percentage point as policymakers expressed concern about job market weakness. Cook a part of the group who voted in favor of the cut.
Fed under pressure
Concerns about the Fed’s separation from the White House’s monetary policy may have an impact on the world economy.
The case has implications for the Fed’s ability to regulate interest rates in accordance with political wills, which are widely believed to be essential for any central bank’s capacity to operate independently and carry out tasks like regulating inflation.
