The Supreme Court allowed Lisa Cook to remain a Federal Reserve governor pending arguments in January on President Trump’s attempt to fire her. On Wednesday, the Supreme Court said Ms. Cook could retain her position while her lawsuit against Mr.
Trump proceeds. The president has tried to gain more control over the Fed. He fired her over allegations of mortgage fraud, which remain unproven.
The court’s decision fell short of a decisive victory for the central bank. It agreed to rule on Ms. Cook’s status only after hearing arguments in January.
“It’s a time to exhale but not breathe easy,” said Peter Conti-Brown, an expert on Fed governance at the University of Pennsylvania. Mr. Conti-Brown warned the issue was far from resolved.
Under the Federal Reserve Act of 1913, the president can remove a Fed official only “for cause.” This typically means gross malfeasance or a neglect of duty while serving in the job. Congress put that safeguard in place to ensure the Fed was protected from undue meddling by the president. Ms.
Cook, who has not been charged with a crime, has argued that the Trump administration’s allegations are “flimsy” and “unproven.” She maintains that Mr. Trump did not give her ample time to rebut them before he sought her removal. Earlier this year, the court granted the president the ability to remove leaders of independent institutions like the Federal Trade Commission and the National Labor Relations Board while cases are being litigated. Mr.
Trump fired Democratic officials from those two agencies purely because of policy differences.
Lisa Cook retains Fed role temporarily
Jeremy Kress, a law professor at the University of Michigan who previously worked as a lawyer at the Fed, said the court’s move gave him more confidence that the justices would eventually side with Ms. Cook.
Still, he cautioned against reading too much into what he described as an “unexplained procedural order.”
How the court ends up ruling will have sweeping ramifications for the central bank. The Fed’s independence has formed the backbone of the world’s largest economy and most important financial system. Mr. Trump has launched a pressure campaign against the Fed to lower interest rates.
If the court sides with Ms. Cook, the threat to the Fed’s independence will be significantly lessened but not eradicated. One concern was that in ousting Ms.
Cook, Mr. Trump would be able to fill her spot with another loyalist. Mr.
Trump aims to have a majority of supporters on the seven-person board. This would give him greater influence over interest rates, policies related to Wall Street, and the inner workings of the Fed. “The president gets to appoint governors and the Fed chair with the advice and consent of the Senate, so over the long term, he can still shape the central bank as vacancies come up,” said Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics.
But if the Supreme Court sides with Mr. Trump after hearing the case in January, the president and his successors will have a more open path to remove Fed officials. Last week, every living former chair of the Fed joined other leading economists in a friend-of-the-court brief.
They suggested that enabling Mr. Trump to remove Ms. Cook would “expose the Federal Reserve to political influences, thereby eroding public confidence in the Fed’s independence and jeopardizing the credibility and efficacy of U.S. monetary policy.”
“For the United States’ democracy, it’s the right call,” Kenneth Rogoff, a Harvard economist who signed the brief, said of the court’s decision on Wednesday.
“You need an independent Fed with a strong anti-inflation bias in order to preserve economic and market stability.”
