A U.S. appeals court declined on Monday to allow Donald Trump to fire Federal Reserve Governor Lisa Cook – the first time a president has pursued such action since the central bank’s founding in 1913 – in the latest step in a legal battle that threatens the Fed’s longstanding independence.
The decision by the U.S. Court of Appeals for the District of Columbia Circuit means that the administration only has hours to appeal to the U.S. Supreme Court if it hopes to block Cook from attending the Fed’s policy meeting on Tuesday and Wednesday where it is expected to cut U.S. interest rates to shore up a cooling labour market.
The D.C. Circuit denied the Justice Department’s request to put on hold a judge’s order temporarily blocking the Republican president from removing Cook, an appointee of Democratic former President Joe Biden.
U.S. District Judge Jia Cobb had ruled on September 9 that Trump’s claims that Cook committed mortgage fraud before taking office, which Cook denies, likely were not sufficient grounds for removal under the law that created the Fed.
The decision was 2-1, with Circuit Judges Bradley Garcia and J. Michelle Childs in the majority, both of whom were appointed by President Joe Biden. Circuit Judge Gregory Katsas, a Trump appointee, dissented.
In an opinion joined by Childs, Garcia wrote that Cook is likely to prevail on her claim that she has been denied due process in violation of the U.S. Constitution’s Fifth Amendment.
“Before this court, the government does not dispute that it provided Cook no meaningful notice or opportunity to respond to the allegations against her,” the judge wrote.
A White House spokesperson did not immediately respond to a request for comment.
The Fed, which had no comment on the ruling, has not made any legal arguments in the case. It has asked the courts for a swift resolution of the matter, and has said it will abide by any court ruling.
Cook’s lawyers did not immediately respond to a request for comment.
Separately, the Senate on Monday night narrowly confirmed Trump’s nominee to a recently vacated seat on the Fed board. The largely party-line 48-47 vote means that it is likely that Stephen Miran, currently chair of the Council of Economic Advisers, will also participate in this week’s rate-setting meeting alongside Cook.
FOR CAUSE
In setting up the Fed, Congress included provisions to shield the central bank from political interference. Under the law that created the Fed, its governors may be removed by a president only “for cause,” though the law does not define the term nor establish procedures for removal. No president has ever removed a Fed governor, and the law has never been tested in court.
In Monday’s opinion, Garcia wrote that because Cook’s due process claim was “very likely meritorious”, there was no need for the court to address the meaning of ‘for cause’ at this point in the case.
Cook, the first Black woman to serve as a Fed governor, sued Trump and the Fed in late August. Cook has said the claims did not give Trump the legal authority to remove her and were a pretext to fire her for her monetary policy stance.
The Trump administration has argued that the president has broad discretion to determine when it is necessary to remove a Fed governor, and that courts lack the power to review those decisions.
The case has ramifications for the Fed’s ability to set interest rates without regard to the wishes of politicians, widely seen as critical to any central bank’s ability to function independently to carry out tasks such as keeping inflation under control.
Trump this year has demanded that the Fed cut rates aggressively, berating Fed Chair Jerome Powell for his stewardship over monetary policy. The Fed, focusing on fighting inflation, has not done so, though it is expected this week to make a cut.
The Supreme Court this year has allowed Trump to proceed with the removal of various officials serving on federal agencies that had been established by Congress as independent from direct presidential control.
But in a May order in a case involving Trump’s dismissal of two Democratic members of federal labor boards, the Supreme Court signaled that it views the Fed as distinct from other executive branch agencies. It said the Fed “is a uniquely structured, quasi-private entity” with a singular historical tradition.
Unlike other members of regulatory boards that the Supreme Court allowed Trump to remove, Cook’s protection from at-will removal distinguished her case, Garcia wrote in Monday’s opinion.
The Trump administration in a court filing on Thursday had asked the D.C. Circuit to move quickly so that Trump could remove Cook before the Fed’s policy meeting on Tuesday and Wednesday. Administration lawyers said that allowing the president to fire Cook would “strengthen, not diminish, the Federal Reserve’s integrity.”
Cook’s lawyers in a filing in response said removing Cook ahead of the meeting would impact U.S. and foreign markets, and that the public interest in keeping her in office outweighed Trump’s efforts to take control of the Fed.
In his dissenting opinion, Katsas said there was a greater risk of harm to the Trump administration than there was to Cook in leaving her in her job while the appeal played out.
“Moreover, the Board of Governors no doubt is important, but that only heightens the government’s interest in ensuring that its Governors are competent and capable of projecting confidence into markets,” Katsas wrote.
In blocking Cook’s removal, Cobb had found that the “best reading” of the 1913 law is that it only allows a Fed governor to be removed for misconduct while in office. The mortgage fraud claims against Cook all relate to actions she took prior to her U.S. Senate confirmation in 2022.
Trump and his appointee, William Pulte, the Federal Housing Finance Agency director, have claimed that Cook inaccurately described three separate properties on mortgage applications, which could have allowed her to obtain lower interest rates and tax credits.
A loan estimate for an Atlanta home purchased by Cook shows that she had declared the property as a “vacation home,” according to a document reviewed, opens new tab by Reuters, information that would appear to undercut the allegations against her.
And the property tax authority in Ann Arbor, Michigan, said in response to a Reuters inquiry that Cook has not broken rules for tax breaks on a home there that Cook had declared her primary residence.
The finding, which came in response to a Reuters request that the city review Cook’s property records, could boost Cook’s defense against efforts by the Trump administration to remove her from the Federal Reserve board.
Trump’s Justice Department also has launched a criminal mortgage fraud probe into Cook, and has issued grand jury subpoenas out of both Georgia and Michigan, according to documents seen by Reuters and a source familiar with the matter.
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