President Trump’s attempt to remove Lisa Cook from the Federal Reserve Board is part of an effort to assert unprecedented economic control.
Who is Federal Reserve Board Member Lisa Cook?
Federal Reserve Board Chair Lisa Cook, who is reappointed until 2038, denied claims that President Trump fired her.
WASHINGTON – As the Supreme Court decides whether President Donald Trump’s sweeping tariffs are legal, the justices will take up another major attempt by the president to assert unprecedented control over the U.S. economy on January 21.
While it’s not unheard of for a president to put pressure on the Federal Reserve over monetary policy, Trump is the first president to try to fire a member of the central bank’s board.
A court is considering whether President Trump can remove Lisa Cook from the seven-member board of governors, as the political and business worlds remain reeling from the shocking revelation that the Justice Department is investigating whether to bring criminal charges against Federal Reserve Chairman Jerome “Jay” Powell.
“This is a bigger case than Mr. Cook,” said Lev Menand, a Columbia University law professor and former Treasury official. “Cook’s removal can be thought of as asking the courts for a roadmap for potentially removing other governors, including Jay Powell.”
President Trump wants to lower interest rates
President Trump is angry that the Fed didn’t lower interest rates as quickly as he wanted.
“It would be a lot easier with the Fed’s help,” Trump said in a recent speech at the Detroit Economic Club, which also included criticism of Powell. “That bastard will be gone soon.”
Lower interest rates could slow the economy, create more jobs, and reduce the value of the federal debt.
That would give Trump a political advantage in this year’s midterm elections. Opinion polls show voters are dissatisfied with his handling of economic policy.
Rapid interest rate cuts may cause inflation
But the Fed is taking a more cautious approach to rate cuts because short-term economic gains could threaten long-term economic stability and lead to a sustained rise in inflation.
That’s why all living former Federal Reserve chairmen, along with many former economic officials and economists, emphasized before the Supreme Court the importance of preserving the independence of the U.S. economy’s highest policy-making body, which is also the foundation of the global financial system.
“The Fed’s ability to fight inflation is directly related not only to its practical insulation from short-term political pressures, but also to the public’s perception of the Fed’s independence,” Janet Yellen, Ben Bernanke, former Fed Chair Alan Greenspan and others wrote in support of Cook.
The U.S. Chamber of Commerce similarly said that the Fed’s independence is “essential to a strong economy and financial stability.”
The Trump administration countered that the “perceived benefits” of an independent Fed were a policy argument and that the only question before the Supreme Court was whether the president’s attempt to fire Cook followed the law.
Supreme Court signals support for Fed independence
Despite the court’s 6-3 conservative majority, it has already signaled it may be skeptical of Trump’s legal claims.
The high court did not immediately consider a lower court’s decision to allow Mr. Cook to remain at the Fed while he fights Mr. Trump’s attempt to fire him. Instead, sentencing was postponed until after oral arguments on January 21st.
By contrast, the court has allowed President Trump to temporarily remove the leadership of other independent agencies before litigation begins in earnest.
And in its May rulings regarding the removal of members of the Merit System Protection Board and the National Labor Relations Board, the court went out of its way to portray the Fed as a different type of agency than those it says should be under the president’s direct control.
“The Federal Reserve System is a quasi-private organization with a unique structure that follows the distinct historical tradition of the First and Second Banks of the United States,” the opinion states.
The administration’s investigation into whether Mr. Powell allegedly misled Congress about plans to renovate the Fed’s headquarters building could harden the justices’ consensus in the Cook case.
Mr. Menand, the Columbia University law professor, said that by suggesting that Mr. Trump’s overall goal was to take control of the Fed, rather than finding out whether Mr. Cook committed an expungable crime, he created a context that undermined Mr. Trump’s case.
Mr. Cook has not been charged with a crime.
President Trump accused Cook of making false statements on a mortgage application before his 14-year term begins in 2023.
Mr. Cook has not been charged with a crime and has not been given the opportunity to formally respond to Mr. Trump’s social media claims that he declared multiple homes as “primary residences” to get better rates on second homes.
The law allows Fed directors to be removed for “just cause,” but it does not spell out what constitutes cause or specify the steps to prove someone has committed disqualifying conduct.
Mr Cook “strongly disputes” that he committed mortgage fraud, but claims the allegations are an excuse to fire him for his stance on monetary policy. His lawyers also said unproven allegations about mortgage documents that Mr. Cook signed before joining the Fed are not sufficient reason to fire him under “just cause” removal protections created by Congress to protect the Fed from political pressure.
“Congress never intended for the nation’s monetary policy to begin a game of finding criminal suspects,” they wrote in their filing.
President Trump denies concerns about Fed independence
The Justice Department argues that the law creating “good cause” protections does not specify how it would work, leaving the president, not the courts, to decide when there is good cause.
The Justice Department said allowing Mr. Cook to remain at the Fed while he fights the allegations would undermine public confidence in the central bank.
“Americans should not have their interest rates determined by someone who has materially misrepresented mortgage rates in a manner that appears to be grossly negligent at best and fraudulent at worst,” the department said in a filing.
In a recent interview with Reuters, President Trump dismissed concerns that undermining the Fed’s independence could undermine the dollar’s value and spark inflation.
“The president should say something” about the Fed’s policy, Trump told Reuters. “I made a lot of money in the business, so I think I understand it better than Jerome Powell from Too Late.”
