In the end, the Supreme Court’s landmark case over whether President Donald Trump can temporarily fire members of the Federal Reserve can be boiled down to a single 26-word sentence.
After repeatedly allowing Trump to remove the leaders of other independent agencies, the conservative court appeared to draw a line around the central bank in a much-debated paragraph last spring, writing that the Fed — with its enormous influence on the economy — is safe from political manipulation because it is “uniquely structured” with a “distinct historical tradition.”
The scope of that unusual exception will be tested Wednesday when the court hears oral arguments in the case of Lisa Cook, a Fed governor Trump tried to fire over the summer amid allegations she committed mortgage fraud by reporting two different homes as her primary residence. (Cook has denied any wrongdoing.)
It is among the most important cases the court has heard in recent years regarding presidential power and the economy.
“What the court has before it is the question of how much this separation is really a barrier to presidential control of the Fed,” said Lev Menand, a law professor at Columbia University who is publishing a book on the central bank in 2022. “This case is much more than Lisa Cook. We’re going to find out what the relationship between the central bank and the president is.”
If Trump is ultimately successful in firing Cook, it would mark the first time a president has fired a Fed governor in the central bank’s 111-year history.
Meanwhile, the Trump administration further raised the stakes this month by opening a criminal investigation into Federal Reserve Chairman Jerome Powell. That battle isn’t before the Supreme Court, but it’s likely to be in the back of the justices’ minds.
Cook warned that a decision for Trump would “eviscerate the independence” of the Fed and trigger “chaos and disruption” for US markets.
For that reason, she and her lawyers relied heavily on those 26 words the court wrote about the Fed last year.
Trump is unlikely to “persuade the court to adopt his arguments,” Cook told the justices in a brief last year. “Especially after this court has gone out of its way to highlight the Federal Reserve’s unique status and distinct history.”
Still at work
For its part, the administration has focused on several technicalities, saying Cook was not entitled to a review of the allegations any more than he received before Trump tried to remove her.
“The fact that the Federal Reserve Board plays an especially 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 to exercise its vast powers,” the Justice Department told the Supreme Court last fall.
Trump fired Cook in August after a member of his administration alleged she committed mortgage fraud by reporting two different homes as her primary residence — a practice that can lead to better loan terms. Other documents later revealed that Cook sometimes declared the second property as a “vacation home”. Cook called the allegations “fabricated” and noted that no court has yet reviewed them.
Federal law gives the president the power to remove Fed members “for cause,” so a key question for the Supreme Court will be whether the charges met the standard for that cause. Because layoffs at independent agencies are rare, the answer isn’t entirely clear.
After his return to the White House a year ago, Trump moved quickly to consolidate his power within the executive branch. During this time, the Supreme Court allowed the president to temporarily remove board members from the Federal Trade Commission, the Consumer Product Safety Commission, the National Labor Relations Board, and the Merit Systems Protection Committee.
But all of those lawsuits involved a slightly different legal issue than the Fed’s current case. In those other disputes, Trump tried to impeach board members without cause — despite federal laws requiring him to prove abuse or neglect.
For Cook, the Justice Department says the mortgage fraud allegations qualify as sufficient motive.
In September, a federal court temporarily blocked Cook’s removal, finding that Trump had not identified anything about her conduct on the job to indicate she was harming the public. A federal appeals court in Washington, DC, declined to stay that order. Trump quickly filed the emergency appeal with the Supreme Court.
Rather than decide the appeal on its emergency docket, the Supreme Court agreed to hear oral arguments.
And in a potentially troubling sign for the administration, it allowed Cook to stay on the job while the case continues.
“Logically Incoherent”
Lawyers for the fired leaders at other independent agencies have sounded a warning for months that they hoped would give the Supreme Court pause.
If the justices allowed the president to fire the board members of the Merit Systems Protection Board, for example, then logically it would also give him the green light to fire Fed governors. The approach was a smart one to take with a Supreme Court that has generally tried to avoid handing down decisions that suddenly disrupt the U.S. economy.
But in an unsigned opinion in May, the court rejected the strategy.
“The Federal Reserve is a uniquely structured quasi-private entity that follows the distinct historical tradition of the first and second banks of the United States,” the court wrote.
The claim drew a puzzled response from Justice Elena Kagan, who described it as “out of the blue” in a dissent joined by the court’s two other liberals.
Kagan wrote that she was “glad to hear” that the court’s conservative majority wanted to avoid “endangering the Fed.” But, she added, the result was puzzling given that it seemed unfounded.
“Today’s order,” Kagan wrote, “represents a puzzle.”
“Because the Federal Reserve’s independence rests on the same constitutional and analytical foundations” as that of the other agency, the court allowed Trump to strike it down.
Menand said the court’s logic in treating the Fed differently than other independent agencies makes no sense.
“It is logically incoherent and doctrinally impossible,” he said. “The legal commentary has ambitions for the court to develop this into something that makes sense, but I’m very skeptical.”
Others say the Fed’s history lends itself to different treatment. When Congress created the first and second banks of the United States, it separated day-to-day control of the money supply from the president, according to a brief supporting Cook from a group of financial and legal experts. The Federal Reserve’s original governance, those experts said, “dispersed authority.”
All of this, they said, was an effort to keep the president’s hands off the people who make monetary policy.
Trump has long been critical of the Fed for, in his view, keeping interest rates high. Critics say the administration’s real goal in targeting Cook — and now Powell — was to pressure the agency to lower rates. The Federal Reserve cut its benchmark interest rate in September, October and December, citing economic indicators, not presidential pressure.
Cook voted in favor of those cuts.
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