Supreme Court Appears Wary of Trump Bid to Fire Fed’s Cook (2)

US Supreme Court justices suggested they are wary of President Donald Trump’s effort to fire Federal Reserve Governor Lisa Cook over unproven mortgage-fraud allegations, saying the move could upend the Fed’s independence and rattle markets.

Hearing arguments in Washington Wednesday, conservative and liberal justices alike sharply questioned US Solicitor General D. John Sauer, who urged the court to let Trump oust Cook for the time being while her lawsuit goes forward.

Trump’s own appointees were among the skeptics. Justice Brett Kavanaugh said the president’s position would “weaken if not shatter the independence of the Federal Reserve.” Justice Amy Coney Barrett asked whether the risk to financial markets was reason for “caution on our part,” though she also suggested she wasn’t ready to fully embrace Cook’s position.

Read More: Trump Power Over Fed Tested as Supreme Court Hears Cook Case

The case is testing the Supreme Court’s commitment to the independence of the central bank. The court so far has helped shield the Fed from Trump’s efforts to seize control, but the Cook case presents a new set of legal issues.

The stakes for the US and world economies are massive, as underscored by a bipartisan group of former Treasury secretaries, Federal Reserve chairs and other experts. They filed a brief saying a decision for Trump would undermine public confidence in the Fed and jeopardize its ability to effectively set monetary policy. The court is set to rule by July.

The Supreme Court argument coincided with a Justice Department criminal investigation into Fed Chair Jerome Powell, a probe that has sparked bipartisan backlash. Powell, a lawyer by training, attended the argument Wednesday, as did Cook and former Fed Chair Ben Bernanke.

‘Hurried Manner’

In a hearing that lasted just short of two hours, justices from across the ideological spectrum voiced reluctance to definitively resolve the major constitutional issues presented by the case. The case reached the high court in September when Trump sought an emergency order letting him oust Cook temporarily.

“Is there any reason why this whole matter had to be handled by everybody — by the executive branch, by the district court, by the DC Circuit — in such a hurried manner?” Justice Samuel Alito asked Sauer. Alito was referring to the district judge who blocked the firing and the US Court of Appeals for the DC Circuit, which refused to lift the lower court’s order.

Trump says it’s Cook who is harming the Fed’s credibility. The administration accuses Cook of fraudulently listing homes in Michigan and Georgia as a “primary residence” to secure more favorable terms on loans when she obtained mortgages in 2021, before she joined the Fed.

The veracity of those allegations isn’t before the court, though Cook has said they are baseless claims that rely on “cherry-picked, incomplete snippets” of documents. Her lawyer, Paul Clement, said Wednesday that Cook had made “at most, an inadvertent mistake.”

In a statement issued after the argument, Cook said the case “is about whether the Federal Reserve will set key interest rates guided by evidence and independent judgment or will succumb to political pressure.”

Cook contends Trump’s bid to fire her is improper for multiple reasons. She argues that, even if the allegations were true, they wouldn’t be grounds for firing because they don’t concern her job performance or eligibility to hold the position. The Federal Reserve Act bars presidential removal of governors except “for cause.”

She also says the Constitution and federal law give her important procedural rights, including an opportunity to contest the allegations before she loses her job.

Kavanaugh Worries

Kavanaugh, appointed to the Supreme Court by Trump in 2018, openly worried about the consequences of giving presidents too much leeway to fire governors.

“Once these tools are unleashed, they are used by both sides, and usually more the second time around,” he said.

The court’s liberal justices joined Kavanaugh in signaling alarm at Trump’s attempted takeover of the Fed.

Since the Fed’s creation in 1913 “it’s unprecedented that any Federal Reserve officer has ever been removed,” Justice Sonia Sotomayor said. “So the unprecedented nature of this case is a part of what the president did, not what Ms. Cook did.”

Sauer responded that, in the past, governors accused of wrongdoing have resigned. Cook has not been criminally charged.

Barrett wondered why the administration couldn’t have offered Cook a hearing, rather than spending so much time in litigation.

“If there isn’t anything to fear from a hearing, and if you have the evidence, why couldn’t those resources have been put into a hearing?” she asked Sauer.

But Barrett also suggested discomfort with the implications of Cook’s arguments. The justice voiced concern that a president wouldn’t be able to remove a governor who watched Nazi videos or engaged in shoplifting or domestic abuse.

“So there’s nothing that the president can do to get rid of someone who does those kinds of things while in office?” she asked Clement.

Narrow Ruling

Because the case is still on the court’s emergency docket — with Trump seeking an order letting him remove Cook only while the government presses an appeal — the justices don’t have to definitively resolve the legal questions.

They instead could factor in the consequences of the decision, including the economic impact. Cook says a ruling in Trump’s favor would have dire implications for financial markets. Trump contends the government would suffer significant harm if he were required to leave Cook in office.

Near the end of the argument, Kavanaugh suggested the possibility of a narrow ruling that would keep Cook in her seat for now while avoiding the trickiest issues for the time being.

“One way would just be to say there was insufficient process and therefore we at this juncture deny the government’s application,” Kavanaugh said to Clement.

Even a narrow ruling letting Cook stay in office would bolster the Fed’s independence, said Kathryn Judge, a Columbia University law professor who studies the Fed.

“It would also make it clear that the Fed is different from other agencies,” said Judge, a former law clerk to now-retired Justice Stephen Breyer.

The Supreme Court seemed to shield Fed governors in May, when it exempted the central bank from a ruling that let Trump oust top officials at two other independent agencies, including the National Labor Relations Board. Though temporary, the decision nullified job protections Congress had created for those positions, with the court majority saying the president’s constitutional authority means he generally can fire top officials at executive-branch agencies for any reason.

The Federal Reserve Act contains a similar provision with its “for cause” limitation. But the court went out of its way to say the NLRB decision didn’t affect the Fed, calling it a “uniquely structured, quasi-private entity.”

The case is Trump v. Cook, 25A312.

--With assistance from Jonnelle Marte.

To contact the reporter on this story:
Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editors responsible for this story:
Elizabeth Wasserman at ewasserman2@bloomberg.net

Steve Stroth

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