Discussion begins that Trump aims to fire Fed director Lisa Cook

The Supreme Court is scheduled to hear oral arguments Wednesday morning in a case over whether President Donald Trump has the authority to fire Governor Lisa Cook of the Federal Reserve on uncontested charges of committing mortgage fraud.

At stake is not only the fate of Mr. Cook, who denies any wrongdoing, but also potentially the Fed’s future independence in determining monetary policy without the risk that the president could easily fire a governor who disobeys his orders in this matter.

Underscoring these risks is the recent disclosure that Federal Reserve Chairman Jerome Powell is the subject of a criminal investigation by the U.S. Attorney’s Office in Washington, D.C., in connection with his oversight of a multibillion-dollar renovation of the central bank’s headquarters there.

Powell, who is scheduled to appear in Supreme Court arguments on Wednesday, said the real reason for the investigation is that the Fed kept interest rates on hold for much of last year, angering President Trump.

Mr. Cook was one of the Fed members who supported Mr. Powell’s support for holding interest rates.

When Mr. Trump moved to fire Mr. Cook in late August, the first time a president had attempted such a move, there was immediate speculation that it was because Mr. Cook did not agree to the rate cuts Mr. Trump wanted.

If Mr. Cook and Mr. Powell were removed from the Fed’s seven-member board, Mr. Trump would be in a position to appoint a majority of the board, giving him, at least in theory, greater influence over interest rate decisions.

When Trump said he was firing Cook, he did not mention his stance on interest rates.

Instead, the president cited allegations by Federal Housing Finance Director Bill Pruitt that he made false statements on mortgage applications before then-President Joe Biden appointed him to the Fed to fill an unfinished board term in 2022.

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

Under the Federal Reserve Act of 1913, only the president can fire Fed directors, and governors like Mr. Cook can only be fired for “just cause.”

Although the law does not specify in detail what constitutes “cause,” historically, cause has been understood to mean misconduct or neglect of duty.

After Mr. Cook sued Mr. Trump seeking an injunction to block his removal from the Fed, a federal district judge in Washington ruled that Mr. Cook could remain at the central bank pending the outcome of the lawsuit.

“Mr. Cook has made a strong showing that his purported removal occurred in violation of the ‘justifiable’ provisions of the Federal Reserve Act,” Judge Gia Cobb wrote in her decision.

Cobb said the “best interpretation” of the provision is that the cause of the removal complaint is related to the governor’s actions “while in office.”

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

The Department of Justice appealed Cobb’s ruling, but lost. The Justice Department then asked the Supreme Court to take the case.

The Justice Department said in its filing that the “determination of cause” for dismissal is subject to “the president’s unreviewable discretion.”

“In any event, the President has identified sufficient cause here,” the filing states.

“The Federal Reserve’s uniquely important role in the American economy only heightens the government’s and the public’s interest in ensuring that an ethically compromised board does not continue to exercise its vast powers,” the filing states.

“Simply put, the President may reasonably determine that the interest rates paid by the American people should not be set by governors who appear to have lied about facts material to the interest rates they secured for themselves and refused to account for obvious misstatements,” the filing states.

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

The brief says Congress “deliberately” designed the Fed to be “a unique and independent institution largely insulated from political pressures that might prioritize short-term economic interests over long-term stability or growth.”

“Granting the administration’s request to immediately remove Governor Cook from the Board would disrupt long-standing protections and critical functions,” the brief said. “Doing so would expose the Fed to political influence, thereby undermining public confidence in the Fed’s independence and endangering the credibility and effectiveness of U.S. monetary policy.”