President Donald Trump’s bid to fire Lisa Cook, a member of the Federal Reserve board, is likely illegal and she must be immediately reinstated, a federal judge ruled Tuesday.
U.S. District Judge Jia Cobb concluded that Trump’s effort to fire Cook over allegations of mortgage fraud that predated her time on the Fed board violated a federal law meant to insulate the interest-rate-setting body from political pressure. Only Cook’s conduct on the job could be grounds for removal, Cobb ruled.
The decision triggers a high-stakes appeals court battle that is likely to quickly land at the Supreme Court. The justices have repeatedly endorsed Trump’s efforts to fire powerful federal regulators and policymakers, but the justices have also signaled they view the Fed as a unique, “quasi-private” institution that may be entitled to more independence than other agencies housed within the executive branch.
Federal law gives Trump the power to fire members of the Federal Reserve Board of Governors “for cause,” which typically means serious misconduct or malfeasance on the job. Trump said he had good cause to fire Cook due to allegations that she claimed in separate mortgage applications that two different homes were her primary residence, which can entitle a homeowner to lower rates.
But Cobb, a Biden appointee, called the mortgage allegation a weak, unproven claim that cannot justify Cook’s summary termination.
Cook has denied that she committed mortgage fraud.
“Allowing the President to unlawfully remove Governor Cook on unsubstantiated and vague allegations would endanger the stability of our financial system and undermine the rule of law,” Cook’s lawyer Abbe Lowell said in a statement. “Governor Cook will continue to carry out her sworn duties as a Senate-confirmed Board Governor.”
Unless a higher court blocks Cobb’s decision, Cook may participate in the Fed’s interest-rate setting meeting next week, where the central bank is expected to vote to lower interest rates in response to a weakening labor market.
A White House spokesperson, Kush Desai, called Trump’s firing of Cook “lawful” and insisted that it improved accountability for the Fed.
“The President determined there was cause to remove a governor who was credibly accused of lying in financial documents from a highly sensitive position overseeing financial institutions,” Desai said. “The removal of a governor for cause improves the Federal Reserve Board’s accountability and credibility for both the markets and American people.”
Federal Reserve officials declined to comment.
The court battle over Cook’s future as a Fed governor has massive implications for the president’s ability to influence the central bank’s interest rate decisions moving forward. Previous administrations — as well as the courts — provided considerable deference to the Fed on the belief that its relative independence from political actors is critical to fighting inflation.
Trump, on the other hand, says the president should have a say in setting rates. And he says he will appoint nominees to the central bank’s board who share his view that short-term borrowing costs need to be brought down to stimulate economic growth.
Trump earlier this year nominated his top economic adviser, Stephen Miran, to fill a short-term vacancy created by the abrupt resignation of Gov. Adriana Kugler. If Cook loses her legal challenge and is dismissed — and her replacement is confirmed by the GOP-controlled Senate — Trump-appointed Fed governors would hold four of the seven seats on the central bank’s board.
That would provide Trump-backed Fed governors more sway over the central bank’s rulemaking and lending capabilities — which cover everything from payments to big bank capital buffers to emergency facilities — as well as the other members of its powerful rate-setting committee. The 12 regional bank presidents who also have a say on rates have five-year terms that are scheduled to expire in February. Their reappointment is contingent on the approval of the Fed board.
Trump boasted about the possibility that he’d soon have a majority on the Fed’s board.
“That’ll be great,” he told reporters last week. “We have to get the rates down a little bit, and when we do, it’s going to be a tremendous difference.”
Some Republican lawmakers, including key senators like Thom Tillis of North Carolina, have said Cook’s case should be adjudicated before any replacement is confirmed.
Cobb noted in her ruling Tuesday that the Trump administration conceded that the “for cause” protection meant Fed members could not be fired over policy disagreements. But she rejected the Justice Department’s claim that the courts had no role in reviewing the legality of such a firing.
“This cannot be the case. Such a rule would provide no practical insulation for the members of the Board of Governors,” the judge wrote.
Cobb also said the Trump administration’s use of social media to air the allegations about Cook, rather than a more formal notice to her, likely violated the Constitution’s requirements that government employees be accorded due process before being ousted from their posts.
“The Court is highly doubtful that Cook should have been required to piece together the evidentiary basis for a ‘for cause’ removal from a scattered assortment of social media posts and news articles,” Cobb wrote. “Even if the notice provided had been sufficient, Cook’s due process rights were nevertheless likely violated because she was not given a ‘meaningful opportunity’ to be heard.”
Cobb also warned that efforts to politically interfere with the Fed could damage the nation’s economy, quoting constitutional experts who warned that such interference could have “harmful, perhaps even disastrous, consequences.”
The mortgage fraud allegations were leveled by the director of the Federal Housing Finance Agency, William Pulte, a Trump appointee who in recent months has made similar claims of fraud against some of Trump’s political adversaries. They have all called the allegations specious and politically motivated, but the president has seized on them to tag his rivals as criminals.
Trump has spent his second term testing the limits of his power to remove agency heads and members of independent boards and commissions that Congress intended to protect from termination without cause.
The Supreme Court has generally sided with him, concluding that the president is owed enormous deference to determine the leadership and policy direction of agencies housed within the executive branch, even if Congress had intended them to remain independent.
However, Cook’s is the first test of Trump’s claim to fire an official “for cause” and whether the courts may second-guess or challenge his allegations against Cook, a Biden appointee who is just three years into a 14-year term.
Cook contends that the mortgage fraud allegation is a thinly veiled pretext for Trump to seize more control over the crucial interest rate-setting board, whose decisions he has long maligned. And Trump allies say the outcome of his move to fire Cook could inform whether he makes a similar bid to remove the board’s chair, Jerome Powell, whom Trump has repeatedly attacked.
