Fed’s Cook Warns Supreme Court of Market ‘Chaos’ If She’s Fired

Federal Reserve Governor Lisa Cook’s attorneys urged the US Supreme Court to let her stay on the job while she fights President Donald Trump’s attempt to fire her, warning that even her temporary removal risks “chaos and disruption” in financial markets.

Granting the Justice Department’s request to allow Trump to immediately oust her “would sound the death knell for the central-bank independence that has helped make the United States’ economy the strongest in the world,” her lawyers wrote in a brief filed Thursday.

The Justice Department has asked the Supreme Court to let Trump remove Cook while it fights a lower court ruling that the economist is likely to succeed in her lawsuit. Cook, an appointee of former President Joe Biden, has continued serving in her post since late August, when Trump announced he would remove her due to mortgage fraud allegations that she’s denied.

The Supreme Court set a fast schedule for written briefs in the case but hasn’t signaled precisely when it intends to rule.

In the new filing, Cook’s lawyers argued that the Justice Department’s delay in asking for Supreme Court intervention until after the Fed’s last policy meeting on Sept. 16-17 was a possible sign the administration “understood the chaos” that might unleash in markets. It also undercut the government’s demand for “immediate relief,” according to the filing.

Cook’s brief cites a 2009 law review article in which then-Judge Brett Kavanaugh discussed how the Fed is insulated from direct presidential control because of its “power to directly affect the short-term functioning of the US economy.” Kavanaugh, now a Supreme Court justice, is potentially a pivotal vote in the case.

The Supreme Court this year has largely sided with Trump in fights over his firings of other federal agency officials, but the justices previously made a point of distinguishing the Fed as a “uniquely structured, quasi-private entity.” A key question with Cook is whether the court will apply that distinction in a case involving alleged wrongdoing by a Fed official, albeit before she was appointed to her post.

Cook’s filing came hours after she won the support of a bipartisan group of former Treasury secretaries, Federal Reserve chairs and other experts who filed a brief backing her case with the justices. The group, which includes former Fed chairs Ben Bernanke, Alan Greenspan and Janet Yellen, said allowing Trump to oust Cook while she challenges her removal would do lasting damage to the public’s trust in the Fed while jeopardizing the credibility and efficacy of US monetary policy.

Read More: Economic Luminaries Enter Legal Battle Over Fed Independence

Trump said last month he was firing Cook after Federal Housing Finance Agency Director Bill Pulte accused her of fraudulently listing homes in Michigan and Georgia as a “primary residence” when she obtained mortgages in 2021 to secure more favorable terms on loans.

Cook’s lawyers have said the allegations are part of a “smear campaign” aimed at discrediting Cook and helping Trump seize control of the Fed, which he has pressured for months to lower interest rates.

They argued in the latest brief to the Supreme Court that “fundamental flaws” in the mortgage fraud claims “have already come to light,” citing media reports that she “properly declared her Michigan home as her principal residence” and “accurately described the Georgia property in question as a vacation home.”

“When that record is compiled, it will demonstrate that Governor Cook never acted improperly with respect to her mortgages and thus will eliminate the president’s stated ground for his purported removal,” her lawyers wrote.

Cook filed the lawsuit in federal court in Washington to block her dismissal, arguing Trump’s unproven claims about mortgage fraud do not amount to “cause” under US law for firing her, and that her purported dismissal via social media post deprived her of her constitutional right to due process.

US District Judge Jia Cobb on Sept. 9 ruled that Cook could remain on the job as her case proceeded, saying that Trump’s attempt to oust her likely violated the law. A divided federal appeals court upheld the ruling on Sept. 15, just hours before the start of the Fed’s highly anticipated two-day meeting to vote on interest rates.

The officials lowered their benchmark interest rate by a quarter percentage point.

Cook’s latest brief also revealed that Cook’s legal team has expanded to include Paul Clement, a former US solicitor general under former President George W. Bush.

The case is Trump v. Cook, 25A312.

--With assistance from Greg Stohr.

To contact the reporters on this story:
Zoe Tillman in Washington at ztillman2@bloomberg.net;
Erik Larson in New York at elarson4@bloomberg.net

To contact the editors responsible for this story:
Misyrlena Egkolfopoulou at megkolfopoul@bloomberg.net

Elizabeth Wasserman, Peter Blumberg

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