The independence of the Federal Reserve appeared front of mind for the U.S. Supreme Court Wednesday as the justices heard oral argument in a case about the firing of a member of the central bank’s board.
While the high court has in other recent cases appeared inclined to give the president of the United States more power to fire the leaders of executive branch agencies, this time it expressed skepticism – sometimes in stark terms – about giving the president more authority to remove officials who guide the country’s monetary policy.
“Big picture, it seems this would [lead to] a what-goes-around-comes-around. All the governors would be removed” after a presidential election, said Justice Brett Kavanaugh, and “we would really [have] at-will removal.”
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A majority of Supreme Court justices appeared wary of President Donald Trump’s attempt to remove a member of the Federal Reserve Board, given the central bank’s importance to the U.S. economy.
History has shown, he added, that “once these tools are unleashed, they are used by both sides.”
President Donald Trump criticized board members of the Fed for months for refusing to lower interest rates as much as he would like. Past presidents have done the same, but because federal law held that they could only dismiss members of the Fed “for cause” – and because they were wary of causing instability in financial markets – public criticism is as far as they went.
In August, Mr. Trump went a step further. He fired Lisa Cook, a member of the Fed’s Board of Governors, over allegations that she committed mortgage fraud. The mortgage fraud allegations were “cause” for her dismissal, Mr. Trump contended in a social media post. Ms. Cook, who has denied the allegations, has not been formally charged. Days after her dismissal, she filed a lawsuit challenging it.
A District Court judge ruled in her favor in September. The judge temporarily reinstated her to the Fed board, pending the conclusion of the lawsuit, on the reasoning that her removal likely was unlawful. An appeals court agreed, and Mr. Trump appealed to the Supreme Court.
Throughout oral argument on Wednesday, the lawyers and justices in the courtroom agreed on one point: the Supreme Court’s assertion – in an unsigned order issued earlier this term in a separate case – that Fed governors are entitled to stronger removal protections because the central bank is “a uniquely structured, quasi-private entity.”
Among many other things, the justices questioned whether they should resolve such a weighty case – with implications for presidential power and for the global economy – when the case has faced so little scrutiny in the lower courts.
“Is there any reason this whole matter had to be handled … in such a hurried manner?” asked Justice Samuel Alito, a member of the court’s conservative majority. No court, he said, “explored those facts” around Ms. Cook’s alleged mortgage fraud.
Justice Sonia Sotomayor, one of the court’s liberal members, agreed.
“We know the independence of the agency is very important,” she said. “Waiting, at least for lower courts to look at these issues first, seems best for the country’s confidence, and the world’s confidence.”
Several important questions remain unanswered in the Cook case, the justices noted. Does Mr. Trump’s social media post amount to giving Ms. Cook “notice” of her firing? If so, was she given an appropriate opportunity to respond? How much should it matter that the alleged fraud occurred before she became a Fed governor? Would the alleged fraud, if proved, be simple “negligence” or, as the Trump administration claims, “gross negligence” that justifies removal from office?
John Sauer, the U.S. solicitor general, argued that Ms. Cook, a person who helps to set interest rates for the entire country, appears to be “playing fast and loose and trying to get a favorable mortgage rate for herself.” That, he said, is causing “grievous reputational harm to the Federal Reserve.”
Thus, he concluded, the court should remove the temporary injunction barring Ms. Cook’s termination.
And not only that: While Mr. Sauer emphasized that Fed board members can only be removed “for cause,” he argued that there are limits to when courts can review a president’s determination of what that “cause” is.
“The President has made a determination, it clearly does relate to conduct, fitness, ability, or competence for that office,” he said. “At that point, there’s no work for the reviewing court to do. The traditional discretion to the President’s determination would kick in.”
Ms. Cook’s lawyer, Paul Clement, countered that there “needs” to be judicial review, especially of what the president determines “for cause” to be.
“If there’s no judicial review, then this is all kind of a joke,” he added.
As the Supreme Court debates how to resolve this case, external pressure continues to mount. Jerome Powell, the Fed chair, reportedly attended Wednesday’s argument. Earlier this month, he announced that he was also facing criminal investigation by the Trump administration. He said he’s being targeted because the Fed didn’t follow Mr. Trump’s desire for lower interest rates.
A decision in the case is expected by the summer.
