Federal Reserve governor Lisa Cook. Photo / Getty Images
A divided federal appeals court today ruled Federal Reserve governor Lisa Cook can keep her job, turning aside an appeal by the Trump Administration that sought to fire her before the central bank’s key meeting this week on setting interest rates.
The Trump Administration was expected to quickly appeal the decision to the Supreme Court.
United States President Donald Trump has accused Cook of mortgage fraud – a charge she denies – and has sought her dismissal.
Lawyers for Cook wrote in filings that trying to remove her so close to this week’s meeting could throw the central bank’s vote on interest rates into “chaos” and has the “real potential of impacting domestic and foreign markets”.
Cook’s lawyers added in a filing on Sunday that allowing Trump’s firing would transform the Fed “from a historically independent institution into an at will body, leaving the nation’s central bank (and its monetary policy) at the mercy of the White House and its political whims”.
The central bank is expected to decide at a meeting tomorrow and Thursday NZT how much to cut interest rates for the first time this year amid signs of a softening US labour market.
No president in the 111-year history of the Fed has tried to fire a governor from the seven-member board that is tasked with maintaining maximum employment as well as low and stable inflation.
Congress set up the agency to act with political autonomy from the president so it could be free to make necessary, but often unpopular, decisions such as raising interest rates. The Federal Reserve Act allows presidents to fire governors only “for cause”.
Trump accused Cook of mortgage fraud in late August, saying the alleged wrongdoing gave him reason to oust her. The Justice Department has opened an investigation but no charges have been filed. Last week, the Washington Post obtained documents that raise questions about Trump assertions that Cook committed mortgage fraud.
Cook has denied the allegations and sued to keep her job, saying her removal was illegal and a pretext for Trump to have a Fed board that will accede to his wishes to lower interest rates.
Trump has loudly complained for months that the Fed should lower interest rates to boost the economy and had previously considered firing Federal Reserve Chair Jerome Powell.
US District Court Judge Jia Cobb, a Biden Administration appointee, issued a temporary restraining order on September 9 allowing Cook to remain on the board.
Cobb wrote in an opinion that the alleged mortgage fraud occurred in 2021, before President Joe Biden nominated Cook to the Fed, so Trump didn’t have good reason to fire her.
“The best reading of the ‘for cause’ provision is that the bases for removal of a member of the Board of Governors are limited to grounds concerning a Governor’s behaviour in office and whether they have been faithfully and effectively executing their statutory duties,” Cobb wrote.
Cobb also said Trump probably violated Cook’s due process rights because the President had not given her prior notice of his intent to fire her and a chance to defend herself.
Administration lawyers argued in a court filing on Monday that judges did not have the discretion to review Trump’s decision to remove Cook.
“Removal ‘for cause’ is a capacious standard that Congress has vested in the President’s discretion,” they wrote. “Even if the President’s determination were reviewable-and over a century of case law suggests it is not-review would be limited.”
If the Trump Administration appeals and the Supreme Court takes the case, it’s unclear how the justices might rule, given the lack of precedent.
The Supreme Court has shown strong support for Trump’s broad assertion of power over independent agencies. In recent rulings, it has permitted the President to fire members of boards dealing with labour issues, consumer product safety and federal workers as they challenge their removals in court.
Chief Justice John Roberts also allowed Trump to go forward with the removal of a Democratic member of the Federal Trade Commission while the court considers whether to weigh in on a case challenging her removal.
The court’s conservative majority has ruled Trump could fire agency heads “without cause” even though Congress set them up to be insulated from political interference.
“Because the Constitution vests the executive power in the President,” the conservative majority wrote in one case, “he may remove without cause executive officers who exercise that power on his behalf, subject to narrow exceptions recognised by our precedents.”
The decisions cut against a 1935 ruling by the high court, known as Humphrey’s Executor, that found Congress could limit the president’s power to remove the heads of independent agencies. Justice Brett Kavanaugh has indicated the court could soon overturn or limit that precedent.
The justices also signalled in a case allowing Trump to temporarily remove the members of the National Labour Relations Board and Merit Systems Protection Board in May that the president does not have unlimited authority to fire governors of the Fed because it is set up differently from other independent agencies.
“The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States,” the majority wrote.