By Jan Wolfe and Andrew Chung
WASHINGTON (Reuters) – President Donald Trump’s administration asked the U.S. Supreme Court on Thursday to let him move ahead with firing Federal Reserve Governor Lisa Cook – a move without precedent since the central bank’s founding in 1913 – in a legal battle that imperils the Fed’s independence.
The Justice Department asked the justices to lift U.S. District Judge Jia Cobb’s September 9 order temporarily blocking the Republican president from removing Cook, an appointee of Democratic former President Joe Biden. Cobb 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 law that created the Fed.
“This application involves yet another case of improper judicial interference with the President’s removal authority -here, interference with the President’s authority to remove members of the Federal Reserve Board of Governors for cause,” the Justice Department said in the filing.
Cook took part in the Fed’s highly anticipated two-day meeting in Washington on Tuesday and Wednesday in 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 favor of the cut announced on Wednesday.
The U.S. Court of Appeals for the District of Columbia Circuit in a 2-1 ruling on Monday denied the administration’s request to put Cobb’s order on hold. The Trump administration on Tuesday said it would ask the justices to intervene.
Congress included provisions in the law that created the Fed to shield the central bank from political interference. Under that law, Fed governors may be removed by a president only “for cause,” though the law does not define the term nor establish procedures for removal. No president has ever removed a Fed governor, and the law has never been tested in court.
Cook, the first Black woman to serve as a Fed governor, sued Trump in August after the president announced he would remove her. 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.
Trump’s bid to fire Cook reflects the broad view of presidential power he has asserted since returning to office in January. So long as the president identifies a cause for removal, that is within his “unreviewable discretion,” the Justice Department said in Thursday’s filing.
“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.
RIPPLE EFFECT
Concerns about the Fed’s independence from the president in setting monetary policy could have a ripple effect throughout the global economy.
The Cook legal battle 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 to 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.”
The administration has repeatedly asked the Supreme Court this year to intervene to allow implementation of Trump policies impeded by lower courts. The Supreme Court, which has a 6-3 conservative majority, has sided with the administration in almost every case it has been called upon to review.
For instance, the Supreme Court has allowed Trump to proceed with the removal of various officials serving on federal agencies that had been established by Congress as independent from direct presidential control.
But in a May order in a case involving Trump’s dismissal of two Democratic members of federal labor boards, it signaled that it views the Fed as distinct from other executive branch agencies. The Supreme Court said the Fed “is a uniquely structured, quasi-private entity” with a singular historical tradition.
‘BEST READING’
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 favorable terms on a mortgage.
In blocking Cook’s removal, the judge found that the “best reading” of the 1913 law is that it only allows a Fed governor to be removed for misconduct while in office. The mortgage fraud claims against Cook all relate to actions she took prior to her U.S. Senate confirmation in 2022.
A divided three-judge D.C. Circuit panel on Monday sided with Cook, ruling that she is likely to prevail on her claim that she has been denied due process in violation of the U.S. Constitution’s Fifth Amendment.
Judges Bradley Garcia and J. Michelle Childs, both of whom were appointed by Democratic former President Joe Biden, formed the majority. Judge Gregory Katsas, a Trump appointee, dissented.
“Before this court, the government does not dispute that it provided Cook no meaningful notice or opportunity to respond to the allegations against her,” Garcia wrote in an opinion joined by Childs.
Trump and his appointee William Pulte, the Federal Housing Finance Agency director, have claimed that Cook inaccurately described three separate properties on mortgage applications, which could have allowed her to obtain lower interest rates and tax credits.
Trump’s Justice Department also has launched a criminal mortgage fraud probe into Cook, and has issued grand jury subpoenas out of both Georgia and Michigan, according to documents seen by Reuters and a source familiar with the matter.
A loan estimate for an Atlanta home purchased by Cook shows that she had declared the property as a “vacation home,” according to a document reviewed by Reuters, information that would appear to undercut the allegations against her.
(Reporting by Jan Wolfe and Andrew Chung; Editing by Will Dunham)
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