Trump takes legal battle with Fed's Lisa Cook to Supreme Court

US President requests emergency order to remove central banker from the Federal Reserve board

Fed governor Lisa Cook is suing President Donald Trump after his attempt to fire her. Reuters

US President Donald Trump asked the Supreme Court on Thursday to allow him to fire Federal Reserve Governor Lisa Cook, setting up a high-stakes decision that could pierce the central bank's independence.

In a court filing, the Trump administration requested an emergency order to remove Ms Cook from the Federal Reserve board. An appeals court on Monday blocked Mr Trump's attempt to oust her in a divided decision.

“This application involves yet another case of improper judicial interference with the President's removal authority – here, interference with the President's authority to remove members of the Federal Reserve Board of Governors for cause,” the Justice Department wrote in a court filing.

Ms Cook sued Mr Trump in August after he moved to fire her over unsubstantiated allegations of mortgage fraud. Ms Cook has not been charged of a crime, has denied the allegations and maintains the President does not have the authority to fire her. The White House argues that Mr Trump acted within his duty to fire Ms Cook.

“That the Federal Reserve Board plays a uniquely important role in the American economy only heightens the government’s and the public’s interest in ensuring that an ethically compromised member does not continue wielding its vast powers,” the Justice Department wrote.

Fed chair Jerome Powell talks with Fed governor Lisa Cook at the central bank in Washington. AP

Under the Federal Reserve Act, Fed officials can only be fired “for cause”, which is generally thought to be considered malfeasance or neglect of duty. However, this has never been tested in court and no Fed official in the 111-year history of the US central bank has been fired.

Mr Trump has sharply criticised Fed Chair Jerome Powell and his colleagues this year for keeping interest rates unchanged, and Ms Cook has argued the President's attempt to oust her is a pretext to change monetary policy.

Ms Cook participated in the Federal Reserve's two-day policy meeting earlier this week, where it reduced interest rates by 25 basis points to bring the central bank's target range between 4 and 4.25 per cent. The Fed also signalled it expects to cut rates by a further 50 basis points this year.

Mr Powell, who is a defendant in the case given his capacity to carry out Mr Trump's order, declined to comment on the embattled Fed governor's legal battle on Wednesday. “I see it as a court case that it would be inappropriate for me to comment on,” he said. The Federal Reserve and White House previously said they would abide by the court's decision.

Bill Pulte, director of the Federal Housing Finance Agency, first raised the mortgage fraud allegations in August. The allegations focus on two properties in Michigan and Georgia that they argue are listed as her primary address.

Trump's move to oust Fed governor ignites battle over central bank independence

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A loan estimate for an Atlanta home purchased by Ms Cook in 2021 showed that she declared that property as a “vacation home”, Reuters reported, undercutting the Trump administration's argument. If he is successful in ousting Ms Cook, Mr Trump would be able to nominate another member to the Fed to carry out the remainder of her term, which expires in 2038.

Mr Trump's attempt to oust Ms Cook is the most extraordinary step he has taken to reshape the Federal Reserve since retaking office earlier this year. If successful, the move to oust her could pierce the idea of Fed independence, which plays a crucial role in the stability of global financial markets and the role of the US dollar. Economists also say efforts to tamper with the Federal Reserve's independence could lead to higher interest rates.