Ultimately, a blockbuster Supreme Court case on whether President Donald Trump can temporarily fire Federal Reserve members may come down to a 26-word sentence.
After repeatedly allowing Trump to remove leaders of other independent agencies, the conservative court appeared to distance itself from the central bank in a controversial passage last spring, saying the Fed wields outsized influence over the economy and is therefore immune to political manipulation because of its “unique structure” and “unique historical tradition.”
The scope of that unusual exception will be tested on Wednesday, when the court hears oral arguments in Lisa Cook’s case. Lisa Cook is a Fed governor whom Trump tried to fire this summer after she was accused of committing mortgage fraud by reporting two different homes as primary residences. (Cook denies any wrongdoing.)
It is one of the most important cases on presidential power and the economy that the court has heard in years.
Lev Menand, a Columbia University law professor who published a book about the Fed in 2022, said: “The question for the court is how much of an obstacle this exception is to the president’s control of the Fed. There is much more to this case than Lisa Cook. We need to clarify the relationship between the central bank and the president.”
If Trump ultimately succeeds in firing Cook, it would mark the first time in the Fed’s 111-year history that a president has fired a Fed governor.
Meanwhile, the Trump administration this month further upped the ante by launching a criminal investigation into Federal Reserve Chairman Jerome Powell. The fight didn’t make it to the Supreme Court, but it may remain in the minds of the justices.
Cook warned that Trump’s decision would “undermine the Fed’s independence” and trigger “chaos and disruption” in U.S. markets.
Because of that, she and her attorneys relied heavily on the 26 words the court wrote about the Fed last year.
Cook told the judge in a brief last year that Trump was unlikely to “persuade the court to adopt his arguments.” “Especially after this court went to great lengths to point out the Federal Reserve’s unique position and unique history.”
Still at work
For its part, the administration has focused on more technical issues, arguing that Cook is not entitled to more scrutiny than she received before Trump tried to oust her.
“The Federal Reserve plays a uniquely important role in the U.S. economy that only advances the interest of the government and the public in ensuring that morally compromised members do not continue to exercise enormous power,” the Justice Department told the Supreme Court last fall.
Trump fired Cook in August after a member of his administration accused Cook of committing mortgage fraud by reporting two different homes as her primary residence, a practice that could lead to better loan terms. Other documents later revealed that Cook sometimes referred to the second property as a “vacation home.” Cook called the charges “fabricated” and noted that no court had yet reviewed them.
Federal law gives the president the power to remove Fed members “for cause,” so a fundamental question before the Supreme Court was whether the charges met the standard for that cause. Because firings at independent agencies are rare, the answer isn’t entirely clear.
After returning to the White House a year ago, Trump moved quickly to consolidate the power of the executive branch. At the time, the Supreme Court allowed the president to temporarily remove board members of the Federal Trade Commission, Consumer Product Safety Commission, National Labor Relations Board and Merit System Protection Board.
But those lawsuits all involve slightly different legal issues than the current Fed case. In other disputes, Trump has sought to fire board members without cause — despite federal law requiring him to show malfeasance or negligence.
For Cook, the Justice Department said the mortgage fraud charges were well-founded.
In September, a federal court temporarily blocked Cook’s removal because Trump failed to point to anything related to her behavior on the job that suggested she was harming the public. A federal appeals court in Washington, D.C., refused to put the order on hold. Trump quickly filed an emergency appeal with the Supreme Court.
The Supreme Court did not rule on the appeal in the emergency case but agreed to hear oral arguments.
In a potentially worrying sign for the government, it allowed Cook to stay on while the case proceeds.
“logically incoherent”
Lawyers for fired leaders of other independent agencies have issued warnings for months in hopes of getting the Supreme Court to pause.
For example, if judges allow the president to fire a board member of the Merit System Protection Commission, logically they would also allow him to fire a Fed governor. The Supreme Court generally seeks to avoid rulings that seriously disrupt the U.S. economy, so it would be wise to take this approach.
But in an unsigned opinion in May, the court rejected that strategy.
“The Federal Reserve is a uniquely structured quasi-private entity that follows the unique historical tradition of the First and Second Banks of the United States,” the court wrote.
The statement prompted confusion from Justice Elena Kagan, who called it “unexpected,” and dissents from the court’s two other liberals.
Kagan wrote that she was “pleased to hear” that the court’s conservative majority wanted to avoid “endangering the Fed.” But, she added, the results were puzzling given that it seemed unfounded.
“Today’s order,” Kagan wrote, “raises a puzzle.”
“Because the Fed’s independence is founded on the same constitutional and analytical foundations as other agencies,” the court allowed Trump to strike at it.
Menand said the court’s logic in treating the Fed differently than other independent agencies doesn’t make sense.
“It’s logically incoherent and doctrinally unworkable,” he said. “Legal commentators are hoping that the courts will flesh this out into something meaningful, but I highly doubt that.”
Others say the Fed’s history makes it treated differently. In creating the nation’s first and second banks, Congress separated day-to-day control of the money supply from the president, according to a brief from a group of financial and legal experts supporting Cook. These experts said the Fed’s initial governance was “decentralized.”
All this, they say, is to keep the president out of the way of setting monetary policy.
In his view, Trump has long criticized the Federal Reserve for keeping interest rates high. Critics say the administration’s real goal in targeting Cook, and now Powell, is to pressure the agency to lower interest rates. The Fed did cut its benchmark interest rate in September, October and December – citing economic indicators rather than presidential pressure.
Cook voted for these cuts.
For more CNN news and newsletters, create an account at CNN.com
