The US Supreme Court on Wednesday appeared reluctant to allow President Donald Trump to fire Federal Reserve governor Lisa Cook, as judges worried about the economic implications of eroding the central bank’s independence.
Justice Brett Kavanaugh, one of six conservative judges on the high court, expressed concern that firing Ms Cook without judicial review “would weaken, if not shatter, the independence of the Federal Reserve”.
“Once these tools are unleashed, they are used by both sides, and usually more the second time around,” he said.
Economists generally consider the Fed's independence on setting monetary policy to be sacrosanct in ensuring economic stability. Analysts also point to Fed officials' staggered, 14-year terms as being able to make long-term decisions without chasing short-term political gains.
The court’s three liberal justices expressed similar worries over weakening the Fed’s independence.
Economic concerns
Meanwhile Amy Coney Barrett, another of Mr Trump’s conservative appointments, questioned whether the court should consider the public’s interest in how the decision could destabilise the US economy.
“We have amicus briefs from economists who tell us that if … we grant you your stay, that it could trigger a recession. How should we think about the public interest in a case like this?” she asked Solicitor General John Sauer.
Ms Cook, who was in the courtroom during the argument, sued Mr Trump in August after he moved to fire her because of mortgage fraud allegations. No charges have been filed against her, and she denies the allegations.
“This case is about whether the Federal Reserve will set key interest rates guided by evidence and independent judgment or will succumb to political pressure,” Ms Cook said in a statement after Wednesday's argument.
She is one of seven members on the Fed’s board of governors, which has faced repeated attacks from Mr Trump over the past year to lower interest rates. The board members hold permanent votes on the Fed committee charged with setting US interest rates, whose decisions are typically followed by most Gulf central banks because of the dollar peg.
Ms Cook had kept a low profile during her tenure on the Fed since being first appointed in 2022, and consistently votes in line with Fed Chair Jerome Powell on monetary policy, but was thrust into the spotlight in the summer when Mr Trump moved to fire her.
Mr Powell attended Wednesday’s argument, as did Ms Cook, Fed governor Michael Barr and former Fed chief Ben Bernanke.
Ms Cook’s case coincides with the Department of Justice’s criminal inquiry into Mr Powell over testimony he made last year relating to the Fed’s multibillion-dollar renovation project. In a rare video statement this month, Mr Powell said the investigation was a pretext to intimidate him to lower rates.
Mr Trump has said he was unaware of the Justice Department’s criminal investigation into Mr Powell.
Due process in question
Justices pressed Mr Sauer on the notion of due process, questioning if Ms Cook was given enough notice to respond to the Trump administration’s allegations.
“Is there any reason why this whole matter had to be handled by everybody … in such a hurried manner?” asked Justice Samuel Alito.
Wednesday’s argument stems from allegations first raised in late August, when a Trump official accused Ms Cook of fraudulently listing homes in the states of Michigan and Georgia as her “primary residence” to receive favourable loans on her mortgage before she was appointed to the Fed.
Under the Federal Reserve Act, a Fed official can only be fired “for cause”, which is generally thought to mean malfeasance or dereliction of duty.
Paul Clement, Ms Cook's lawyer, said she made “at most, an inadvertent mistake”, which was before she joined the Fed board.
Mr Sauer said gross negligence on finances is grounds for removal.
“The American people should not have their interest rates determined by someone who was, at best, grossly negligent in obtaining favourable interest rates for herself,” he said.
But Justice Sonia Sotomayor, on the court’s liberal wing, questioned the severity of such a mistake.
“Is it grossly negligent to make a mistake on a mortgage application?” Ms Sotomayor said.
