While it is not unheard of for a president to pressure the Fed on interest rate issues, Trump is the first to attempt to remove a central bank board member.
Supreme Court retains Lisa Cook on Federal Reserve Board
The Supreme Court ruled 5-4 that President Donald Trump cannot fire Lisa Cook from the Federal Reserve, maintaining checks on presidential power and the Fed’s independence.
WASHINGTON – The Supreme Court on June 29 rejected President Donald Trump’s efforts to exert unprecedented control over the economy, ruling that Lisa Cook cannot be fired as the head of the Federal Reserve.
In a 5-4 ruling, the court said Cook could remain on the central bank’s board while he challenges Trump’s ability to remove him from office, a major loss for the president after the court rejected sweeping tariffs that were the centerpiece of his economic policy.
The ruling means lower courts will continue to debate whether Trump had sufficient cause to fire Cook. But it also means that the president’s ability to reorganize the board through removal is being checked.
The case tested limits on the president’s power to fire Fed members, which were imposed by Congress decades ago to insulate the central bank from political pressure.
John Roberts’ opinion limits presidential power
In a separate case the court also decided on June 29, making it easier for President Trump to fire the leaders of other independent agencies, Chief Justice John Roberts said there was “good reason” for Congress to limit the president’s ability to fire the head of the Federal Reserve.
Roberts wrote that accepting Trump’s argument would mean allowing the president to fire governors “for any reason, without prior notice or after-the-fact judicial check.”
“Protection for cause would then amount to little more than at-will employment,” he wrote.
He said the ultimate question of whether Trump had sufficient cause to fire Cook will depend in part on underlying facts that the court did not address.
“Rather, we merely addressed the parties’ arguments regarding the appropriate legal standard by which the facts must be evaluated,” he wrote.
Four of the court’s six conservative justices dissented, but for different reasons.
President Trump said in a social media post that the justices sent the case back to the lower court “based on rigorous procedures.”
“We will take immediate and appropriate steps to ensure that the wrongdoer is no longer able to make important decisions regarding the welfare of the United States,” Trump wrote.
the fed controls interest rates
The Fed has broad influence over the economy through its interest rate decisions.
Lower interest rates can slow the economy, increase employment, and reduce the value of the federal debt. For consumers, lower interest rates make mortgages, auto loans, and credit card debt cheaper.
That could help Trump politically in this year’s midterm elections. Opinion polls show voters are dissatisfied with his handling of economic policy.
But cutting rates too quickly could threaten long-term economic stability and lead to a sustained rise in inflation.
Mr. Cook has been part of the Fed’s cautious approach to rate cuts, which President Trump has criticized.
“I believe the right thing to do at this point is to keep interest rates stable,” Cook said in a May speech at Stanford University’s Economic Policy Institute.
All living former Federal Reserve chairs, along with many economists, had stressed to the Supreme Court the importance of maintaining central bank independence.
It’s not unheard of for a president to pressure the Fed over monetary policy, but Trump is the first president to try to fire a member of the central bank’s board.
Dismissal of Fed Directors for “just cause” is permitted by law
The court’s review of Cook’s case comes amid revelations that the Justice Department is investigating whether to bring criminal charges against then-Federal Reserve Chairman Jerome Powell.
Mr. Powell and Mr. Cook argued that the allegations against them were trumped up to give Trump an excuse to fire them because they resisted pressure to lower their benefits deeper and faster.
“This was never about the mortgage documents I signed years before I became president of the Federal Reserve,” Cook said in a statement after the decision. “This was an attempt to remove me from office on trumped-up excuses because I refused to bow to political pressure and continued to set interest rates based only on what best served the American people.”
Federal law allows the president to remove a Fed director, but only “for cause.”
The law does not spell out what constitutes a disqualification, nor does it provide a procedure for proving that someone has committed a disqualifying act.
Trump tried to fire Cook via social media
In a letter posted on social media in August, President Trump claimed that Cook had previously declared multiple homes as his primary residence in order to get preferential rates on second homes.
Mr Cook denied the charges. They argued that if President Trump were able to fire her without an opportunity for a justifiable defense, the “for cause” protections for removal would be meaningless and the Fed’s independence would be undermined.
“There is no rationale for creating this unique quasi-private entity, exempt from everything from appropriations procedures to civil service law, just to create expungement restrictions that are as inflexible as the president imagines,” Paul Clement, an attorney representing Cook, said during oral arguments in January.
The administration countered that the real damage to the Fed’s reputation would be to keep Mr. Cook on the board.
“Americans should not have their interest rates determined by someone who is, at best, grossly negligent in obtaining favorable interest rates,” Attorney General John Sauer told the court.
He asked the judge to block a lower court’s order that Cook could remain at the Fed while he disputes Trump’s claims.
The Supreme Court previously signaled support for the Fed
The court signaled early doubts about Trump’s stance in October when the justices said they would hear oral arguments before deciding whether to intervene.
By contrast, the court had allowed President Trump to temporarily remove the leaders of other independent agencies before the litigation got underway.
But in its May decisions 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 the one it had indicated 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.
President Trump is exploring the limits of his executive powers, including powers over government agencies designed to be insulated from political influence.
