High court seems unlikely to allow Trump to fire Cook
The Supreme Court signaled on Wednesday that maintaining Federal Reserve independence was critical to keeping markets stable and the public’s faith in the economy strong, and allowing the firing of a Fed governor could upset that independence.
This was the tone during the case of Lisa Cook, the Fed governor whom President Donald Trump is trying to fire for alleged mortgage fraud. The court signaled that it would likely allow lower court cases against Cook to proceed before any decision about her place on the Fed board is made.
Justice Brett Kavanaugh said the court was weighing Fed independence against allowing a governor to be removed for serious wrongdoing.
According to the Associated Press, Cook's attorney, Paul Clement, said that, based on that line of thinking, the high court should side with Cook.
“It’s less important that the president have full faith in every single governor, and it’s more important that the markets and the public have faith in the independence of the Fed from the president and from Congress,” Clement said.
Kavanaugh, a Trump appointee, showed skepticism in the administration’s case, saying Trump’s position on firing Cook would “weaken, if not shatter, the independence of the Federal Reserve.”
Economists have warned that a non-independent central bank could lead to drastic Fed rate cuts, causing rapid inflation and actually raising mortgage rates rather than lowering them.
Cook released a statement to The New York Times after the day’s hearing wrapped up, saying her case is “about whether the Federal Reserve will set key interest rates guided by evidence and independent judgment or will succumb to political pressure. For as long as I serve at the Federal Reserve, I will uphold the principle of political independence in service to the American people.”
While there is no specific timeline for a ruling in the case, many experts believe it may be in March or April before the high court issues a decision.
Fed is the exception
Despite the Supreme Court largely rubber-stamping most of Trump’s agenda through the first year of his second term, many legal experts thought this case might be one where he would run into a roadblock.
Kenneth Katkin (pictured top), law professor at Northern Kentucky University’s Chase College of Law, said Trump has been able to fire others without the Supreme Court stepping in. However, the Cook case was different.
“There are several cases, of which hers is just one,” Katkin told Mortgage Professional America. There are several cases about whether the President can fire different kinds of commissioners in different agencies of the government that have statutory job protection. The Fed is one. There's one from the Federal Trade Commission, there's one from the Merit Systems Protection Board, and there's one from the National Labor Relations Board.
“And Trump went ahead and tried to fire all those people, and in every single case, the lower court said that the firing was illegal. But in three out of four of those cases, the Supreme Court intervened and said, ‘Well, we're going to take this case, but in the meanwhile, until we can hear the case, we're going to let Trump's firing stand. So these people have to go.’ But they said the opposite in the Federal Reserve case.”
Powell likely safe
Katkin said not only was Cook's continued stay on the Fed board during her investigation a sign that the high court was viewing the Fed differently, but the Fed’s unique position has also been mentioned in other cases.
“In one of the other cases, I think it was the National Labor Relations Board case, they had some language in that case saying, ‘This is different than the Fed,’” he said. “The Fed is a unique thing, and whereas the National Labor Relations Board is more like the ordinary kind of thing. I think that they're generally going to side with Trump in these kinds of cases, but that the Fed would be the exception to that.”
A ruling in favor of Cook likely also means the president wouldn’t be able to fire Fed chair Jerome Powell, whose chair term ends in May.
“I don't think the Court is going to side with Trump on the Cook case,” Katkin said. “The Cook case probably won't be decided until March or April, and it would probably make no difference. If the court determines that Trump can fire Cook, and then after that, Trump fires Powell. He's only firing Powell a couple of weeks before he was going to go.
“I don't think this is about Powell's personal stature at the Fed or his Fed chair, but I think it's more about the independence of the Fed overall. He's trying to stand up for the independence of the Fed as an institution.”
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