By Andrew Chung, John Kruzel and David Lauder
WASHINGTON, Jan 21 (Reuters) – Conservative and liberal U.S. Supreme Court justices on Wednesday signaled skepticism over President Donald Trump’s attempt to fire Federal Reserve Governor Lisa Cook over a case threatening the central bank’s independence.
During nearly two hours of deliberations in the case, the justices indicated they were unlikely to grant the Trump administration’s request to lift the judge’s decision to prevent the Republican president from immediately firing Cook while his legal challenge continues.
Some judges argued in favor of the Trump administration, the US Attorney General D. John Sauer pressed why Cook had not been given a chance to formally respond to the unsubstantiated mortgage fraud allegations — which he denied — that the president cited as justification for Cook’s removal. They also raised concerns about the impact on the economy of the first such presidential firing from a central bank and the Fed’s cherished independence from political influence.
The case represents the latest controversy to hit the top U.S. judicial body involving Trump’s expansive view of presidential power since he returned to office 12 months ago.
When the court, which has a 6-3 conservative majority, agreed to hear the case in October, they left Cook in his job for the time being.
“This issue is about whether the Federal Reserve will set key interest rates guided by evidence and independent judgment or bow to political pressure,” Cook, who participated in the arguments, said later in a statement.
“As long as I serve at the Federal Reserve, I will uphold the principles of political liberty in the service of the American people,” Cook added.
‘fraud or gross negligence’
Sauer told the justices that the charges against Cook reflect on his “conduct, fitness, ability or competence to serve as governor of the Federal Reserve.”
“Someone who is so negligent in getting the American people the best interest rate for themselves should not be setting their own interest rates,” Sauer said.
“There is reason for the financial regulator to rule out fraud or gross negligence in financial transactions,” Sauer added, arguing that the charges needed to be dropped immediately.
Cook has called the allegations against him a pretext to fire him over differences in monetary policy as Trump has pressed the central bank to cut interest rates and criticized Fed Chairman Jerome Powell for not doing so sooner.
Conservative Chief Justice John Roberts told Sauer that his argument that Cook should be ousted immediately applies if the basis of the mortgage allegation — that he cites two different properties as his principal residence — is “contradicted by other documents in the erroneous record.”
Sauer responded that, even if Cook made a mistake on the mortgage, “it’s a pretty big mistake.”
Roberts seemed skeptical, telling Sauer, “We can debate that.”
Lawyer Paul Clement, who argued for Cook, told jurors that the charges against Cook arose from a “very inadvertent mistake” in a mortgage application relating to a holiday property.
Trump’s move against Cook is seen as the most consequential challenge to the Fed’s independence since it was founded in 1913. So far, no president has tried to fire a Fed official.
The decision of the Supreme Court is expected by the end of June.
‘A million tough questions’
Conservative Justice Samuel Alito expressed concern that the administration had handled the case “in a very cursory manner.” Although the case includes Trump’s claimed reasons for firing Cook, Alito said, “No court has explored those facts. Are there even mortgage applications on the record in this case?”
“There are a million difficult questions in this case,” Alito said.
In creating the Fed, Congress passed a law called the Federal Reserve Act that included provisions to insulate the central bank from political interference, requiring governors to be removed by the president only “for cause,” although the law did not define the term or establish removal procedures.
Clement told the justices that Trump’s position would transform tenure security into “at-will employment” for Fed governors.
“That makes no sense,” Clement said. “There is no rational reason to go through all the trouble of creating this unique, quasi-private institution that is exempt from everything from the (congressional) appropriations process to civil service law, to ban its removal that is as toothless as the president envisions.”
Roberts expressed skepticism about Sauer’s argument that claims of presidential causation are not reviewable, or that judges cannot reinstate a fired official.
Conservative Justice Brett Kavanaugh expressed doubts about the real-world impact of the administration’s arguments.
“Your position,” Kavanaugh told Sauer, “is that there’s no judicial review, no due process, no remedy available, a very low bar for cause to be determined solely by the president — I mean, it undermines, if not shatters, the independence of the Federal Reserve.”
Conservative Justice Amy Coney Barrett also questioned why the Trump administration refused to testify on Cook’s behalf, saying it “wouldn’t have been such a big deal” for Trump to sit down with Cook and present the alleged evidence against him.
Barrett also asked Sauer about the practical implications of allowing Trump to fire Fed governors.
“We have amicus (friend of the court) briefs from economists who tell us that if Governor Cook is (fired), it could lead to a recession. How do we think about the public interest in that situation?” Barrett asked, adding: “If there is a risk (at this early stage of the case) doesn’t that advice warrant caution on our part?”
Sauer said Cook was notified of his dismissal in August, and that it has not affected the market. Sauer asked the justices to weigh in on briefs submitted by economists predicting the demise of the U.S. economy with a “jaundiced eye” in support of Cook.
U.S. District Judge Zia Cobb ruled in September that Trump’s attempt to remove Cook without notice or a hearing may have violated his right to due process under the Fifth Amendment to the U.S. Constitution. Cobb also found that the mortgage fraud allegations were not legally sufficient grounds to remove a Fed governor under the law, noting that the alleged conduct occurred before he served in the Fed post.
The U.S. Court of Appeals for the District of Columbia Circuit denied Trump’s request to put Cobb’s order on hold.
‘You’re fired’
Conservative and liberal justices alike posed sharp questions to Sauer over his argument that Cook was not entitled to formal notice and a hearing before being removed by the president.
Conservative Justice Neil Gorsuch asked Sauer what such a hearing would look like and whether Cook was entitled to legal counsel. Sauer responded that in the past the court has been very reluctant to “dictate procedures to the president” and that the decision would be for Trump.
“Calling Ms. Cook into the (White House) Roosevelt Room, sitting at the conference table, listening to, I don’t know how much time, how much evidence a lawyer needs, and then making a decision? Could it be enough?” Gorsuch asked, adding: “The meeting at the conference table ended with ‘you’re fired’?”
Conservative Justice Clarence Thomas asked Sauer on what basis the justices should conclude that the Fed “is an executive branch agency and therefore the president has the power to remove it.”
“There is an academic debate about whether the Federal Reserve’s open market operations constitute executive power or something else, essentially private conduct. However, Congress has over the years packed into traditional executive powers at the Federal Reserve,” Sauer responded.
As Fed governor, Cook helps set U.S. monetary policy with the rest of the central bank’s seven-member board and the heads of 12 regional Fed banks. His tenure lasts till 2038. Cook was appointed in 2022 by Democratic former President Joe Biden to become the first black woman to serve in the position.
Liberal Justice Ketanji Brown Jackson pressed Sauer to reconcile two conflicting positions: his assertion that the president has broad discretion to remove Fed governors and his recognition that Congress included tenure protections for Fed governors to protect the Fed’s independence from White House interference.
“How does this further the intent of the statute?” Jackson asked.
Alito cast doubt on Clement’s argument that a Fed governor’s conduct before taking office could not provide grounds for removal by the president, asking Cook’s attorney to address a series of increasingly serious hypothetical scenarios.
“How, if after the person takes office, videos are revealed in which the office holder expresses deep admiration for Hitler or the Klan?” Alito asked.
Agency independence
In previous cases, the Supreme Court stripped the independence of various federal agencies from presidential control, and may soon overturn a key precedent that has protected the heads of independent agencies from removal since 1935.
But the court indicated last year that it might look to the central bank as an exception, noting in a May order that Trump allowed two Democratic members of the Federal Labor Board to overrule the Fed’s unique structure and historic traditions.
The Supreme Court has backed Trump on a series of emergency orders since his return to office on immigration, mass federal deportations, foreign aid cuts, dismantling the Department of Education and other issues.
The president sought to fire Cook on August 25, citing allegations of mortgage fraud on social media by Federal Housing Finance Agency Director Bill Pulte, a Trump appointee.
The administration opened a criminal investigation into Powell this month over comments he made to Congress last year about a Fed construction project, which he called a pretext intended to influence monetary policy.
(Reporting by Andrew Chung; Additional reporting by Jan Wolff, John Kruzel and David Lauder in Washington and Ann Safir in San Francisco; Editing by Will Dunham)
