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Washington — The Supreme Court is set to convene Wednesday to consider President Trump’s bid to remove Lisa Cook from her post on the Federal Reserve Board of Governors, a case that could have significant ramifications for the independence of the central bank.
The case arose after Mr. Trump attempted to oust Cook from the board last year — an unprecedented move that marked the first time in the Fed’s 112-year history that a president tried to fire a sitting governor. So far, lower courts and the Supreme Court have allowed Cook to continue serving in her post while litigation over her removal proceeds.
But the case is being closely watched for its potential implications for the Fed’s independence. Also looming over the legal battle is a criminal investigation by the Justice Department related to testimony Fed Chairman Jerome Powell gave to the Senate Banking Committee last June about a multi-year project to renovate the central bank’s Washington, D.C., headquarters.
Powell, a frequent target of Mr. Trump’s attacks, is set to attend arguments Wednesday, a source directly familiar with his plans confirmed to CBS News.
“We have never seen a direct showdown between the president and the Federal Reserve in terms of the president trying to fire the governors of the Fed,” said Adam White, a senior fellow at the American Enterprise Institute who focuses on the Supreme Court. “We don’t even know what the rules are really for this kind of showdown.”
The Federal Reserve Act of 1913 allows the president to remove a member of the Fed’s Board of Governors “for cause,” though it does not define the term. The president invoked that law last August when he informed Cook in a letter that she had been fired. Mr. Trump cited as the basis for her ouster allegations from a senior member of his administration, Federal Housing Director Bill Pulte, that Cook made misrepresentations on mortgage documents relating to properties in Michigan and Atlanta.
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Mr. Trump wrote he had “sufficient cause” to remove Cook because of what he claimed was “deceitful and potentially criminal conduct in a financial matter.”
Cook has denied wrongdoing, and her lawyers called the allegations against her “flimsy” and “unproven.” They argued that the accusations were “conveniently timed” after Mr. Trump criticized the Fed’s decisions surrounding interest rates. The president has expressed frustration that the central bank has not moved quickly enough to lower interest rates and denounced Powell as “incompetent” and “crooked.”
On the heels of her purported removal, Cook filed a lawsuit challenging the move and arguing that the president violated the Federal Reserve Act. Cook also said she was entitled to and deprived of notice and the opportunity for a hearing before she was fired.
A U.S. district court in Washington, D.C., ruled for Cook and reinstated her to the role, finding that Mr. Trump had not validly removed her “for cause.” Judge Jia Cobb also ruled that Cook was likely to succeed on her argument that her due-process rights were deprived because she did not receive the necessary process before her firing.
After a divided panel of three appeals court judges continued to block Cook’s removal, the Trump administration asked the Supreme Court to intervene and allow the president to fire her.
But the high court in October scheduled arguments in the case and allowed Cook to remain in her position while it weighs Mr. Trump’s bid for emergency relief. As a result, she participated in the past two meetings of the Fed’s interest rate-setting committee. Its next meeting is set for late January.
Arguments in the legal battle come weeks after the Supreme Court considered another effort by Mr. Trump to fire members of independent agencies. In that case, the Justice Department argued that for-cause removal protections for those officials are unconstitutional because the president has unrestricted power to remove executive officers.
But in the court fight involving the Fed, the Trump administration is not challenging the constitutionality of the removal restriction for members of the Fed board. Instead, the issues are whether Mr. Trump needed to give Cook notice and a hearing before removing her, if the president had cause to fire her — and what constitutes “cause” — and whether courts can review that finding.
“This is the first fight between the president and a Fed governor over how to carry out that power that’s been in the law for a century, but mercifully we’ve never used it,” White said. “I think the court will save the Federal Reserve Act, but not necessarily save this Federal Reserve actor.”
In Supreme Court filings, Solicitor General D. John Sauer argued the president lawfully ousted Cook after “concluding that the American people should not have their interest rates determined by someone who made misrepresentations material to her mortgage rates that appear to have been grossly negligent at best and fraudulent at worst.”
Cook’s alleged conduct “created an intolerable appearance of impropriety in someone charged with the weightiest responsibilities in our financial system,” he wrote. “There is a world of difference between that removal and removals grounded in policy disagreements.”
Sauer also told the justices in papers that courts cannot second-guess the president’s determination that there was cause to fire Cook. But even if they could, Mr. Trump identified a valid reason for doing so: her “apparent fraud or gross negligence in a financial matter,” the solicitor general said.
But Cook’s lawyers argued that the Fed’s independence and for-cause removal protection prohibit her firing. They told the Supreme Court in filings that the allegations of private, pre-office conduct do not constitute “cause” for removal. Cook was appointed by President Joe Biden to the Fed Board in May 2022, and the allegations involve mortgage agreements from 2021.
Cook also did not receive the notice and opportunity to be heard that she is due under federal law and the Constitution’s Fifth Amendment, they said.
Accepting Mr. Trump’s claim that removals from the Fed Board are not subject to judicial scrutiny would “eviscerate” Congress’ choice to safeguard the central bank’s independence, Cook’s lawyers warned.
“Congress did not mean for the nation’s monetary policy to turn on that game of find-an-alleged crime,” they said.
The Supreme Court has indicated in a string of decisions that it believes the president has the power to remove members of independent agencies at will. But it has also suggested that the Fed is different from entities like the Federal Trade Commission and National Labor Relations Board. In a May order allowing Mr. Trump to fire members of two labor boards without cause, the high court singled out the central bank as a “uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”
Then, in arguments in December, Justice Brett Kavanaugh expressed concerns about undermining the independence of the Fed. He suggested the court could create an exception for the central bank to the president’s otherwise unrestricted power to remove certain executive officers.
But some legal experts question that path. Ilan Wurman, a law professor at the University of Minnesota, warned that it may be difficult for the Supreme Court to explain why the Fed should be treated differently from other independent agencies.
“There’s no exception in the Constitution to the constitutional separation of powers, to the president’s oversight of law execution for financial regulators. There just isn’t,” he said. “Go look for a clause in the Constitution that says financial regulators are different. You’re not going to find it. If the Federal Reserve is exercising executive power, it’s no different than any other exercises of executive power.”
Cook has argued that the mortgage allegations are pretextual, and Mr. Trump moved to fire her because he disagrees with her monetary-policy decisions. Powell, too, said the threats of criminal charges are “pretexts” and a consequence of the Fed setting interest rates that differ from Mr. Trump’s preferences.
As to the Fed chair, Wurman said, “It’s clear they’re trying to build a case for-cause on the assumption that the court will, in fact, think the Fed is different.”
Fed governors serve 14-year terms. If Mr. Trump is ultimately allowed to fire Cook and the president appointed a successor, it would mean he will have named the majority of the seven-member Board of Governors. With Powell’s tenure as chair also set to end in May, the president has been meeting with candidates to succeed him.
