By Andrew Chung and John Kruzel
WASHINGTON, Jan 21 (Reuters) – A lawyer for Donald Trump’s administration during arguments at the U.S. Supreme Court on Wednesday defended the president’s unprecedented bid to fire Federal Reserve Governor Lisa Cook in a case that tests how far the justices may be willing to go to preserve the central bank’s independence.
The case represents the latest dispute to come to the top U.S. judicial body involving Trump’s expansive view of presidential powers since returning to office 12 months ago.
Trump’s administration has asked the Supreme Court, which has a 6-3 conservative majority, to lift a judge’s decision barring the Republican president from firing Cook while her legal challenge plays out. When the justices in October agreed to hear the case, they left Cook in her job for the time being.
The arguments were ongoing.
‘DECEIT OR GROSS NEGLIGENCE’
Trump cited unproven mortgage fraud allegations – which she has denied – as justification to fire Cook.
D. John Sauer, the U.S. solicitor general arguing for Trump’s administration, told the justices that the allegations against Cook impugn her “conduct, fitness, ability or competence to serve as a governor of the Federal Reserve.”
“The American people should not have their interest rates determined by someone who was, at best, grossly negligent in obtaining favorable interest rates for herself,” Sauer said.
“Deceit or gross negligence by a financial regulator in financial transactions is cause for removal,” Sauer added.
In creating the Fed, Congress passed a law called the Federal Reserve Act that included provisions meant to insulate the central bank from political interference, requiring governors to be removed by a president only “for cause,” though the law does not define the term nor establish procedures for removal.
Trump’s move against Cook is seen as the most consequential challenge to the Fed’s independence since it was formed in 1913. Until now, no president had sought to oust a Fed official.
Conservative Chief Justice John Roberts noted that Sauer has asserted that “deceit” is a proper justification for ousting Cook. But Roberts questioned whether the evidence is more consistent with an “inadvertent mistake” on Cook’s part.
Sauer responded that, even if Cook made a mistake on mortgage paper, “it is quite a big mistake.”
Roberts seemed skeptical of that argument, saying that “we can debate that.”
Conservative Justice Amy Coney Barrett asked Sauer about the practical implications of allowing Trump’s firing of a Fed governor.
“We have amicus (friend-of-the-court) briefs from economists who tell us that if Governor Cook is (fired), that would trigger a recession. How should we think about the public interest in a case like this?” Barrett asked, adding: “If there is a risk (at this preliminary stage of the case) doesn’t that counsel caution on our part?”
Sauer urged the justices to weigh the predictions of doom for the U.S. economy by economists in briefs submitted in the case supportive of Cook with a “jaundiced eye.”
U.S. District Judge Jia Cobb in September ruled that Trump’s attempt to remove Cook without notice or a hearing likely violated her right to due process under the U.S. Constitution’s Fifth Amendment. Cobb also found that the mortgage fraud allegations likely were not a legally sufficient cause to remove a Fed governor under the law, noting that the alleged conduct occurred before she served in the Fed post.
The U.S. Court of Appeals for the District of Columbia Circuit declined Trump’s request to put Cobb’s order on hold.
‘YOU’RE FIRED’
Conservative and liberal justices alike posed sharp questions to Sauer on his contention that Cook was not entitled to formal notice and a hearing before removal by the president.
Conservative Justice Neil Gorsuch asked Sauer what such a hearing would look like and whether Cook would have a right to legal counsel. Sauer responded that the court in the past has been very reluctant to “dictate procedures to the president” and that it would be up for Trump to decide.
“Calling Ms. Cook into the (White House) Roosevelt Room, sitting across a conference table, listening for, I don’t know how long, how much evidence is a lawyer required, and then making a decision? Could that suffice?” Gorsuch asked, adding: “Just a meeting across a conference table finished with, ‘You’re fired’?”
Cook has called the allegations against her a pretext to fire her over monetary policy differences as Trump heaps pressure on the central bank to cut interest rates and lashes out at Fed Chair Jerome Powell for not doing so more quickly.
Conservative Justice Clarence Thomas asked Sauer on what basis should the justices conclude that the Fed is “an executive branch agency and hence that the president does have a removal authority.”
“There’s an academic dispute about whether or not the Federal Reserve’s Open Market operations constitute executive power or something else, essentially private conduct. However, Congress has over the years kind of packed on traditional executive powers on the Federal Reserve,” Sauer replied.
As a Fed governor, Cook helps set U.S. monetary policy with the rest of the central bank’s seven-member board and the heads of the 12 regional Fed banks. Her term in the job runs to 2038. Cook was appointed in 2022 by Democratic former President Joe Biden as the first Black woman to serve in the post.
Liberal Justice Ketanji Brown Jackson pushed back on Sauer’s contention that Cook should be at least temporarily removed from office while her legal challenge proceeds in the lower courts.
“To what extent do we believe that the president or the public is harmed by allowing Ms. Cook to remain in her position for the pendency of this case?” Jackson asked. “I’m not sure that we have evidence here that Ms. Cook is an immediate threat.”
Paul Clement, a veteran Washington lawyer who served as U.S. solicitor general under Republican former President George W. Bush, will argue on behalf of Cook.
Cook and Powell were expected to attend the arguments and former Fed chair Ben Bernanke entered the building for the arguments.
AGENCY INDEPENDENCE
In prior cases, the Supreme Court chipped away at the independence of various federal agencies from presidential control, and could soon overrule a key precedent that has shielded the heads of independent agencies from removal since 1935.
But the court last year signaled it may view the central bank as an exception, noting in a May ruling that let Trump remove two Democratic members of federal labor boards that the Fed possesses a unique structure and historical tradition.
The Supreme Court has backed Trump in a series of emergency rulings since he returned to the presidency on immigration, mass federal layoffs, cutting foreign aid, dismantling the Education Department and other matters.
The Cook case has ramifications for the Fed’s ability to set interest rates without regard to the wishes of politicians, widely seen as critical to any central bank’s ability to carry out tasks such as keeping inflation under control.
The president sought to fire Cook on August 25 by posting a termination letter on social media citing the mortgage fraud allegations disclosed by Federal Housing Finance Agency Director Bill Pulte, a Trump appointee.
The administration this month opened a criminal investigation into Powell over remarks he made to Congress last year about a Fed building project, a move he similarly called a pretext aimed at gaining influence over monetary policy.
In Davos, Switzerland, Trump said on Wednesday everyone he has interviewed for the job of Fed chair to replace Powell is great, but added that the problem was that nominees change once they get the job. Trump said he will announce his choice soon.
(Reporting by Andrew Chung; Additional reporting by Jan Wolfe, John Kruzel and David Lawder in Washington and Ann Saphir in San Francisco; Editing by Will Dunham)
Disclaimer: This report is auto generated from the Reuters news service. ThePrint holds no responsibility for its content.