Lisa Cook, the first Black woman on the Federal Reserve’s Board of Governors, in a titanic legal struggle. This ongoing battle is with ex-President Donald Trump. Cook’s case, which is being heard in the Supreme Court, addresses Trump’s attempt to remove her from her influential position on the Fed’s Board, where she serves as the first female Black governor.
Cook, who President Joe Biden nominated to the FHFA, is under fire for unsubstantiated claims of mortgage fraud. Trump alleges that she misrepresented her primary residence in two separate homes in order to obtain more favorable loan terms. Cook from the start has vehemently denied any misconduct. She claims that her perch at the Fed is necessary to protect its independence.
The outcome of this case could have far-reaching implications not only for Cook’s career but for the Federal Reserve’s independence and its ability to set interest rates free from political pressures.
The Allegations Against Cook
The allegations brought forth by Trump focus on claims that Lisa Cook misrepresented her primary residence status to benefit from more favorable mortgage rates. This claim is misleading and is a larger effort to undermine her appointment to the Fed’s Board.
In refutation of these claims, Cook has refused to back down, standing on her record, character and pursuit of her job. I assert and have at all times acted without any malfeasance,” she said.
The political battle went nuclear in late March when Trump officially moved to fire Cook. Moreover, he asserted that her behavior could damage the reputation of the Federal Reserve beyond repair. The legal question at the heart of this case is how broad presidential control can be, both with respect to the Fed’s policy independence and its governance structure.
Implications for the Federal Reserve
As the nation’s central bank, the Federal Reserve has an important impact on the direction of monetary policy in our nation. Its powerful, unelected, rate-setting committee of 12 officials—seven of whom are appointed by the president—has gained influence over time. These appointments are supposed to be independent and free from political interference. This ensures the Fed’s independence to make decisions based on economic assessments instead of political fires.
If Lisa Cook is removed from her position, it could signal a shift in how presidential power is exercised concerning the Federal Reserve. Experts have cautioned that this change would pose a serious risk to the central bank’s independence. It would further impede its capacity to independently and adeptly set interest rates.
Jerome Powell, current Chair of the Federal Reserve, has raised alarms about the precedent Cook’s case would set. He stated, “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.” This illustrates the enormous peril in permitting political incentives to shape the outcomes of monetary policy deliberations.
The Broader Context
Cook’s legal battle comes as the Federal Reserve is facing increased pressure to be accountable. There’s growing scrutiny on its appointments too. Members of the Fed’s Board are intended to be insulated from political pressure, with staggered, 14-year terms extending well beyond the administration of any President. Trump’s failed attempt to remove Cook makes clear that this insulation must be able to endure attacks from a bellicose executive branch.
Cook, unsurprisingly, is fighting hard to keep her job. Her nomination would create an important precedent regarding how future presidents will deal with the politically independent Federal Reserve Board. The implications stretch well beyond just a few individual appointments. They do raise important questions about the protective silo of the separation of powers and the independence of regulatory bodies.