SCOTUS hears lawsuit over firing of Federal Reserve Governor Lisa Cook
The Supreme Court heard arguments regarding President Donald Trump’s attempt to fire Federal Reserve Board President Lisa Cook.
On June 29, the Supreme Court ruled 5-4 that President Donald Trump cannot fire Federal Reserve President Lisa Cook. The decision was seen as a loss for the president, who has sought to influence the central bank, and a victory for the central bank’s independence.
The court said Cook could remain on the central bank’s board while challenging Trump’s ability to remove him. This means that lower courts will continue to consider whether President Trump had “cause” to fire Cook, but that he cannot remove her outright while the process is ongoing.
President Trump has consistently urged Fed policymakers to lower interest rate thresholds in an effort to stimulate the economy, an issue he has struggled to win over with voters in his second term. The Fed typically lowers borrowing costs to help stimulate the labor market and raise borrowing costs to stabilize prices. After three months of solid job growth and rising inflation, there is growing consensus among Fed policymakers to raise rates this year.
President Trump tried to fire Cook last August after he voted, along with most of his colleagues, to keep the benchmark interest rate unchanged during the first five meetings of 2025. Mr Cook said the decision was not based on a vote on interest rates, but on allegations of fraud by lying on two mortgage applications in 2021.
Mr Cook denies wrongdoing and challenged the move in court. As the legal battle unfolds, several economists, legal experts and Cook said they felt her attempted firing was motivated by the president’s desire to influence monetary policy. In January, then-Fed Chairman Jerome Powell called it “perhaps the most important lawsuit” in the Fed’s history.
Lisa Cook remains on the Fed board
The ruling means Mr. Cook will be allowed to continue serving on the Fed’s board, but the case cost him nearly $1.2 million in legal fees. Two nonprofits, the State Democracy Defense Fund and Contina Impact, covered the majority of the payments, according to filings made public by the U.S. Office of Government Ethics.
Former President Joe Biden appointed Cook to the board for his first term in 2022, making her the first Black woman to serve in the role. He reappointed her to the board the following year. Her term does not end until January 2038.
The Federal Reserve Act of 1913 allows the president to fire Fed officials for “just cause,” but Trump is the first to formally attempt to do so.
Chief Justice John Roberts wrote for the court’s majority opinion that agreeing with the Trump administration’s argument would effectively transform the Federal Reserve’s “for-cause protection” for Fed employees into “at-will employment. This is an interpretive leap that departs sharply from Congressional statutes and our nation’s central bank tradition of protection from political interference.”
Does Lisa Cooke want interest rates to go down?
As a member of the Federal Reserve Board, Mr. Cook serves on the Federal Open Market Committee, which is responsible for setting the federal funds rate, the national interest rate benchmark.
She, along with most of her colleagues, voted in favor of rate cuts three times late last year in response to historically low hiring for U.S. employers. Mr. Cook is generally seen as a dovish, or someone who supports lowering interest rates, but he has supported keeping rates on hold until 2026.
However, Cook said he may be open to raising inflation after rising inflation due to supply chain disruptions caused by the Iran war. Annual inflation has been above the Fed’s 2% target since 2021. In May, the indicator of the Ministry of Labor reached 4.2%, and the indicator of the Ministry of Commerce rose to 4.1%.
“After five years of above-target inflation, we are particularly sensitive to the risk that higher inflation will be incorporated into price and wage-setting actions,” Cook told the Stanford Economic Policy Institute on May 27. “We are therefore prepared to raise rates if the expected disinflation does not emerge in a timely manner.”
For now, the committee’s target range remains between 3.5% and 3.75%.
Concerns about Fed independence ease for now
The decision came after the Justice Department concluded its investigation into Mr. Powell and the Fed in April, after Sen. Thom Tillis (R-North Carolina) cited it as a reason to hold up confirmation of new Fed Chairman Kevin Warsh.
The investigation, which Mr. Powell and other former Fed chairmen denounced, was related to the budget for a multibillion-dollar renovation project at the central bank’s Washington headquarters.
“Honestly, we won’t feel comfortable about the independence of the Fed until we have a new president, and a lot of that is because this person is very vocal about what he wants and he’s not shy about it,” said Gbenga Ajilore, chief economist at the Center on Budget and Policy Priorities. “We have never seen such a targeted attack on an organization like this president’s.”
After the Justice Department dropped its investigation, U.S. Attorney for the District of Columbia Jeanine Pirro said the Federal Reserve’s inspector general would instead investigate the construction cost overruns. Warsh said June 17 that he expects the inspector general’s report this summer to determine whether the project should be treated differently to better manage taxpayer money.
Contact Rachel Barber rbarber@usatoday.comFollow her on X @rachelbarber_and subscribe to her newsletter Making More of Your Money here.
