US supreme court justices appeared skeptical of Donald Trump’s case for firing a Federal Reserve governor on Wednesday, in a key test of the president’s power – and his administration’s battle to exert greater control over the US central bank.
Five months after Trump tried to fire Lisa Cook over apparent discrepancies on mortgage applications his officials claim are evidence of fraud, both conservative and liberal justices grilled the administration over whether the US president has the power to fire a Fed governor with seemingly no process.
Justice Brett Kavanaugh, nominated by Trump, warned of potential “downstream effects” if the court allowed the White House broad discretion.
“If this were set as a precedent, it seems to me – just thinking big picture –what goes around comes around,” said Kavanaugh. “All of the current president’s appointees would likely be removed for cause on January 29, 2029 if there’s a Democratic president,” he said, offering a hypothetical. “It incentivizes the president to come up with trivial or inconsequential or old allegations that are very difficult to disprove.”
A federal court blocked Cook’s removal, and she remains on the Fed’s rate-setting board. The supreme court’s decision on the case will test the limit of Trump’s powers as leader of the executive branch.
The Trump administration is waging an unprecedented battle with the Fed over interest rates, after policymakers defied the president’s repeated calls for drastic cuts.
The Department of Justice has been widely criticized this month for launching a criminal investigation into Jerome Powell, the US central bank’s chairman. While it is pursuing Powell over renovations to the Fed’s historic office buildings in Washington DC, he has argued he is being targeted for not “following the preferences of the president”.
Powell was in attendance at Wednesday’s hearing, according to reports.
The line of questioning during Wednesday’s oral arguments highlighted the extraordinary nature of the case: Trump’s attempt to remove Cook last summer marked the first time in US history that a president fired a sitting Fed governor. Cook was appointed by Joe Biden in 2022, becoming the first woman of color to serve on the Fed’s board. Her term is set to be completed in 2038, as Fed governors serve 14-year terms.
The administration has alleged that Cook committed mortgage fraud by misrepresenting multiple properties as her primary residence to get a better mortgage rate – an accusation which initially came from Bill Pulte, a close Trump ally and head of the Federal Housing Finance Agency, who has instigated similar investigations against others, including the New York attorney general, Letitia James, and Democrat senator Adam Schiff.
Cook’s lawyers have accused the administration of “cherry-picking” information, and argued that Cook accurately listed her property on other loan documents. The discrepancy the administration is focused on is an “inadvertent mistake”, they said.
Federal statute says that removal of a Fed official must be “for cause”, though it does not specify what constitutes “cause”, or what procedures the White House should follow when it believes there is reason for firing.
The opaqueness of the law, and the unprecedented nature of this case, gives the justices a lot of room for discretion and, ultimately, will set the standard for the power the White House can wield over the Fed, which has typically operated independently from political interference.
Lawyers for Cook point out that there was little formalized process involved in Cook’s firing. Broad mortgage fraud allegations were posted on social media, no formal investigation was launched and there were no hearings over the allegations.
On Wednesday, a majority of justices expressed concern about the fate of the Fed’s independence. Kavanaugh also seemed particularly sensitive to the Fed’s structure within the federal government, at one point directly asking John Sauer, Trump’s solicitor general: “What, in your view, is the purpose of that independence?”
Justice Amy Coney Barrett asked why there was no hearing over the allegations the administration made against Cook. “If one step you could take to reduce irreparable harm to show that there really was cause is just to have a hearing, why not?” she asked. Sauer responded the White House believes that “adequate process was already provided”.
The court will have to choose how narrowly it wants to decide the case. A ruling, for example, could say that the federal government did not follow adequate processes when it fired Cook specifically. But it could make an even broader statement about the independence of the Fed, and the protections it believes its officials have.
Paul Clement, a lawyer for Cook, told the judges that one way to decide the case is to say there was insufficient process. “I think that would be a very simple way to decide this case, I think perhaps the defect … is that it probably maximizes the chance that it gets back here on the merits,” he said. “Whereas, if you decided to go a little further and say something substantive, it might bring all of this to an end.”
Trump as president has enjoyed wielding seemingly unlimited power from the executive branch, including allowing the so-called “department of government efficiency” to fire tens of thousands of federal workers and defund programs across the government.
Legal experts believe that the note suggests, softly, that the court may give special protections to the Fed, and its officials, that are not granted to other government agencies. Last spring, supreme court justices briefly mentioned the Fed in an unrelated ruling around two labor officials Trump had fired. “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,” they wrote.
Congress created the Fed in 1913 and gave it a unique structure that made it more independent than other parts of the executive branch. It does not receive funding directly from Congress. Its Federal Open Market Committee sets interest rates at eight scheduled meetings a year.
Economic research has shown that a truly non-partisan central bank, unswayed by politics, is essential in keeping economies and markets stable. That has not stopped Trump from embarking on a public campaign to get Fed officials to lower rates, a move he says would accelerate growth.
The president has repeatedly made public attacks against Powell, who he has called “a stupid person”, and last spring privately told advisers that he wanted to fire Powell. While Trump backed down when markets dipped at news that he could fire Powell, he continued his relentless campaign.
Fed officials have resisted playing along with Trump’s desired agenda. The Fed has what it calls a “dual mandate” to manage inflation and unemployment. Raising interest rates can stabilize high prices at the risk of causing unemployment.
Out of the eight rate-setting meetings the Fed held last year, economists lowered rates at only three of them, bringing rates down to a range of 3.5% to 3.75%. Fed officials, including Powell, have cautioned that Trump’s policies, including mass deportations and increased tariffs, have been influencing prices and the labor market, and increasing uncertainty in the economy.
On Wednesday, after the hearing, Cook said in a statement that the Trump administration’s case against her “is about whether the Federal Reserve will set key interest rates guided by evidence and independent judgment or will succumb to political pressure”.
