A federal court just granted a temporary stop to President Donald Trump’s unusual attempt to fire Federal Reserve governor Lisa Cook. Beyond these individual issues, this ruling represents a profound sea change in the judicial administration of U.S. monetary policy. This one is pretty special though. It would be unprecedented in history for a sitting president to try to remove a Fed governor.
Now, as the first African American woman to serve on the Federal Reserve’s board, she sets U.S. interest rates. Earlier this month, she became the target of an unprecedented legal fight when President Trump attempted to fire her. The court has not yet decided whether such an action is legal or not. Judge Jia Cobb’s ruling is an important victory in the ongoing struggle over the balance of power between the executive branch and the independent central bank.
During the case’s full progression, Judge Cobb’s ruling means Cook can continue to fulfill her role as a Senate-confirmed board governor. In her ruling, Judge Cobb showed just how limited the basis for removal of a Fed governor really is—completely focused on what they do in office. On the latter point, she emphasized their need to focus on doing their jobs well.
“The best reading of the ‘for cause’ provision is that the bases for removal of a member of the board of governors are limited to grounds concerning a governor’s behaviour in office and whether they have been faithfully and effectively executing their statutory duties.” – Judge Jia Cobb
Cook’s legal team, led by attorney Abbe David Lowell, argued that Trump’s actions constituted illegal political interference with the Federal Reserve’s independence. Lowell stressed that the ruling serves as a reminder that we must defend the independence of our Federal Reserve. He said it reaffirms the premise that we must protect it from improper political interference. He affirmed that Cook, like all other clerks, would do her job, fulfilling her oath of office.
“Governor Cook will continue to carry out her sworn duties as a Senate-confirmed board governor.” – Abbe David Lowell
This high-stakes legal battle comes amid President Trump’s steady drumbeat of attacks on the Federal Reserve. He’s most especially going after its chair, Jerome Powell. Trump has repeatedly been unhappy with the Fed’s interest rates, claiming his administration’s economic recovery has been stifled by the Fed’s policies. Trump and businessman William Pulte charged Cook with lying about three homes on mortgage applications. To justify their fraud, they said this allowed her to qualify for lower interest rates and tax credits.
As this unusual legal situation develops, experts and observers will be watching closely. They will be looking carefully at how it affects the Federal Reserve’s independence and the wider economic picture. Depending on the outcome, it could establish either a new precedent on the degree of presidential control allowed over independent regulatory agencies, like FERC.