Conservative and liberal U.S. Supreme Court justices have expressed skepticism that President Donald Trump will seek to remove Federal Reserve Governor Lisa Cook in a case that calls into question the independence of the central bank.
During nearly two hours of arguments in the case Wednesday, the justices indicated they were unlikely to grant the Trump administration’s request to lift a judge’s decision barring the Republican president from immediately removing Cook from office while his legal challenges continue.
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Some of the justices asked U.S. Attorney General John Sauer, who defends the Trump administration, why Cook was not given a chance to formally respond to unproven mortgage fraud allegations that the president cited as justification for firing Cook, which she denies.
They also expressed concerns about the economic impact of such a first-ever removal of a president by a central bank and the impact on the Fed’s cherished independence from political influence.
The case represents the latest dispute in the nation’s highest judiciary involving Trump’s wide-ranging views on presidential power since he returned to office 12 months ago.
When the court, which has a 6-3 conservative majority, agreed to hear the case in October, Cook remained in office for the time being.
“This case challenges whether the Federal Reserve sets key interest rates based on evidence and independent judgment, or whether it succumbs to political pressure,” Cook, who attended the argument, said in a statement afterward.
Cook added, “As long as I serve at the Federal Reserve System, I will uphold the principles of political independence in the service of the American people.”
Federal Reserve Chairman Jerome Powell also watched the nearly two-hour argument in the packed courtroom.
“Cause of deletion”
Mr. Sauer told the judge that the charges against Mr. Cook violate his “conduct, suitability, competence, and competency as president of the Federal Reserve Board.”
“Americans should not have their interest rates determined by someone who, at best, was grossly negligent in obtaining favorable interest rates for them,” Sauer said.
Sauer added that “deception or gross negligence on the part of financial regulators in financial transactions is grounds for removal,” arguing that the complaint requires immediate removal.
As President Trump ramped up pressure on the central bank to cut interest rates and criticized Fed Chair Jerome Powell for not doing so sooner, Cook claimed the allegations against her were an excuse to fire him over differences in monetary policy.
Conservative Chief Justice John Roberts asked Ms Sauer to explain whether her argument that Ms Cooke should be immediately removed applies if the basis for the mortgage allegations – in which she listed two different properties as her primary residence – was an “inadvertent mistake inconsistent with other documents in the record”.
Mr. Sauer countered that even if Mr. Cook made a mistake on the mortgage documents, “that’s a pretty big mistake.”
Roberts seemed skeptical, telling Sauer, “We can discuss that.”
Lawyer Paul Clement, representing Ms Cooke, told the judge that the allegations against her arose from “at best an inadvertent mistake” in a mortgage application for a holiday property.
President Trump’s move against Cook is seen as the most serious challenge to the Fed’s independence since its creation in 1913. No president before has sought to oust Fed officials.
The Supreme Court’s decision is expected to be handed down by the end of June.
Pressure on Fed Independence
Conservative Justice Samuel Alito expressed concern that the administration had handled the case “very loosely.” Although the case involves President Trump’s alleged cause for firing Cook, Alito said, “No court has ever examined that fact. Is there even a mortgage application on the record in this case?”
“There are a million difficult questions in this case,” Alito said.
When creating the Federal Reserve, Congress passed a law known as the Federal Reserve Act, which includes provisions intended to insulate the central bank from political interference and requires the president to be removed by the president “only for cause,” although the law does not define that term or establish a procedure for removal.
Clement told the judge that Trump’s position turns Fed board members’ tenure protections into “at-will employment.”
“That doesn’t make sense,” Clement said. “There is no rationale for creating this unique quasi-private organization, which is exempt from everything from[Congressional]appropriations procedures to civil service laws, just to create removal restrictions that are as ineffective as the president imagines.”
Roberts expressed doubts about Sauer’s claims that the president’s cause is not subject to review or that judges cannot reinstate fired police officers.
Conservative Justice Brett Kavanaugh expressed doubts about the real-world impact of the administration’s arguments.
Kavanaugh told Sauer: “Your position is that there will be no judicial review, there will be no process, there will be no remedies available, there will be a very low standard of cause, and only the president will decide. So that would undermine, if not shatter, the independence of the Federal Reserve.”
Conservative judge Amy Coney Barrett also questioned why the Trump administration denied Cook a hearing in its own defense, saying it was “not that big of a deal” for Trump to talk to Cook and present evidence against her.
Barrett also asked Sauer about the practical implications of allowing Trump to fire Fed directors.
“We have an amicus brief from economists that says if Governor Cook is (removed) it will cause a recession. How should we think about the public interest in a case like this?” Barrett asked, adding, “If there is a risk (at this early stage in the case), won’t the lawyers alert us?”
Mr. Sauer said Mr. Cook was notified of his termination in August and that it had no effect on the market. Mr. Sauer urged the justices to consider with a “jaundiced eye” the predictions of doom for the U.S. economy by economists in briefs filed in support of Mr. Cook.
U.S. District Judge Gia Cobb ruled in September that Mr. Trump’s attempt to remove Mr. Cook from office without notice or hearing likely violated Mr. Cook’s right to due process under the U.S. Constitution. Mr. Cobb also said that the allegations of mortgage fraud likely would not be legally sufficient grounds to remove a Fed director under the law, noting that the alleged conduct occurred before he assumed the Fed position.
The U.S. Court of Appeals for the District of Columbia Circuit rejected President Trump’s request to put Cobb’s order on hold.
“You have been fired.”
Conservative and liberal justices alike asked pointed questions about Sauer’s argument that Cook was not entitled to formal notice and a public hearing before being removed by the president.
Conservative Justice Neil Gorsuch asked Sauer what such a hearing would look like and whether Cook would have a right to an attorney.
In response, Sauer said the courts have been very reluctant to “dictate the process to the president,” and that it is up to Trump to decide.
“You’re going to call Mr. Cook into the Roosevelt Room[in the White House]sit across the conference table, listen to the lawyers for an unknown amount of time and how much evidence they need, and then make a decision? Is that enough?” Gorsuch asked, adding, “Was the meeting across the conference table just ending 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 power to remove him from office.
“There is academic debate as to whether the Federal Reserve’s open market operations constitute executive authority or some other, essentially private act, but Congress has for many years packed it into a type of traditional executive authority over the Federal Reserve,” Sauer responded.
As a Fed director, Mr. Cook helps shape U.S. monetary policy along with the rest of the central bank’s seven-member board and the heads of the 12 regional Fed banks. His term of office runs until 2038. Cook will be appointed by former US President Joe Biden, a Democrat, in 2022 and will be the first Black woman to hold the position.
Liberal Justice Ketanji Brown Jackson pressed Sauer to reconcile the two seemingly contradictory positions. His assertion that the president has broad discretion to fire Fed directors and his recognition that Congress included tenure protections for Fed directors to protect the Fed’s independence from White House interference.
“How does that further the purpose of this law?” Jackson asked.
Mr. Alito expressed skepticism about Mr. Clement’s argument that a Fed director’s conduct before taking office could not be grounds for removal by the president, and asked Mr. Cook’s lawyers to address a series of increasingly egregious hypothetical scenarios.
“What if, after that person becomes president, a video is released of that person expressing deep admiration for Hitler or the Klan?” Alito asked.
On August 25, the president posted a termination letter on social media, calling for Cook’s removal, citing allegations of mortgage fraud revealed by Bill Pruitt, the head of the Federal Housing Finance Agency, a Trump appointee.
The administration this month opened a criminal investigation against Mr. Powell over comments he made to Congress last year about Fed construction projects, a move Mr. Powell similarly called a pretext aimed at gaining influence over monetary policy.
