In a landmark 5-4 decision, the US Supreme Court ruled that President Donald Trump cannot immediately fire Federal Reserve Governor Lisa Cook, affirming limits on presidential authority over the central bank. The justices found that Trump failed to provide Cook with procedural protections required by statute before dismissing her on unproven allegations of mortgage fraud.
Ruling Details and Implications
The court stated: "The court decides this application on the narrow ground that the president failed to afford Cook the procedural protections to which she was entitled by statute. Without such protections, she could not properly dispute the charges the president laid against her." Cook, a Biden appointee and the first Black woman on the Fed's board, has a term scheduled to expire in 2038.
Trump fired Cook in August via social media, claiming evidence of mortgage fraud—an illegal practice where a homebuyer lists a second property as a primary residence for a better mortgage rate. Cook denied the allegations and sued, arguing she was fired without cause.
Context of Court's Approach
This ruling marks a departure from the court's recent tendency to grant Trump broad power in his second term. Earlier on Monday, the court ruled Trump could fire Federal Trade Commission Commissioner Rebecca Slaughter and a Democratic member of the National Labor Relations Board, leaving the NLRB without a quorum. The court also stripped lower courts of power to issue nationwide injunctions and upheld ICE's use of race and ethnicity in immigration enforcement.
However, the court appears determined to protect the Fed. The decision is a major win for the central bank, which has faced White House pressure over interest rates. Trump has repeatedly criticized the Fed for keeping rates too high, arguing they stifle economic growth.
Fed Independence Under Threat
Most Fed officials have ignored Trump's demands for lower rates. The independence of the Fed is widely considered essential for economic stability. Trump's ire has also targeted former Fed Chair Jerome Powell, whom the Justice Department investigated over testimony about Fed headquarters renovations that went over budget. The investigation closed in April after backlash, but the White House suggested the inspector general is still reviewing the matter.
Powell, whose term as chair ended in May, chose to remain as a Fed governor, a rare move signaling concern over Fed independence. He said he would stay until investigations into the renovations are "well and truly over with transparency and finality." Kevin Warsh replaced Powell as chair and is expected to be more amenable to rate cuts despite potential inflationary impacts amid the war with Iran.
Significance of the Fed's Role
The Fed sets interest rates, which determine borrowing costs across the US economy. Cook is one of 12 board members who vote eight times a year on rates. Economists widely agree that an independent central bank, free from political pressure, is crucial for a stable economy. The Fed was created in 1913 and, while technically within the executive branch, has historically operated independently from the White House and Congress.
