Fed independence preserved: Four lessons from Lisa Cook's win

A federal judge's ruling quotes Justice Kavanaugh on Federal Reserve independence, reminding the Supreme Court about their line in the sand.

Lisa Cook at her 2023 nomination hearing (Photo by Drew Angerer/Getty Images)

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In a ruling preserving Lisa Cook’s position as a Federal Reserve governor, a federal judge latched onto the central issue of the independence of the U.S. central bank.

“That independence is critical in helping the nation’s ‘banking system to promote stability,’” U.S. District Judge Jia Cobb wrote in a 49-page memorandum opinion on Thursday night.

Here are some of the lessons from that ruling.

The ruling points to the Supreme Court’s line in the sand.

As All Rise News recently noted, the Supreme Court has been extremely deferential to Donald Trump recently, handing him at least 20 victories on the emergency docket pausing lower court orders, often with little explanation. Some of those favorable rulings for Trump allowed him to fire leaders of quasi-independent government entities whose positions were supposed to be protected.

The Federal Reserve, however, was supposed to be a red line.

In her ruling, Judge Cobb wouldn’t let the Supreme Court forget that.

“As Justice Kavanaugh has observed, insulation of the Federal Reserve from ‘direct presidential oversight or control’ ‘may be worthwhile,’ due to ‘its power to directly affect the short-term functioning of the U.S. economy by setting interest rates and adjusting the money supply,’” Cobb wrote. “Others have put it more bluntly: Given this significant power and responsibility, ‘[s]ubjecting the Fed[eral Reserve] to close political oversight would likely have harmful, perhaps even disastrous, consequences.’”

Over the past year, the Supreme Court has let Trump at least temporarily oust Federal Trade Commissioner Rebecca Slaughter, Merit Systems Protection Board member Cathy Harris and National Labor Relations Board member Gwynne Wilcox.

When Wilcox’s attorneys warned that the Federal Reserve would be next, with dire consequences for the U.S. economy, the Supreme Court minimized those concerns months ago by writing: “We disagree.”

“The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States,” conservative majority added.

Quoting that language in her ruling, Judge Cobb added: “The Federal Reserve’s structure, and in particular, the for cause protection, reflects Congress’s decision that ‘a degree of independence was needed to ‘increase the ability of the banking system to promote stability.’’”

Cobb rejected the Justice Department’s argument that allowing Cook to continue serving as Federal Reserve governor intruded upon executive power.

“Cook is one of seven members of a Board that is, by design, not intended to be susceptible to policy pressure, let alone tasked with implementing the President’s agenda,” she noted.

The ruling sets a stage for a reckoning on that principle at a time when the Supreme Court keeps pausing lower court orders against Trump on an emergency basis.

There’s no reckoning yet on those mortgage fraud claims.

During other purges of quasi-independent offices, Trump relied on a radical and unprecedented expansion of Article II executive power, but the Federal Reserve Act makes clear that he can only fire Cook “for cause,” in light of her ongoing 14-year term.

Appointed by Joe Biden, Cook still has most of her tenure ahead of her, and so Trump had to come up with a reason to remove her.

Trump claims that the “cause” for Cook’s termination is mortgage fraud, an allegation that Trump routinely lobs at his political adversaries. In particular, the Trump administration has accused Cook, Sen. Adam Schiff (D-Calif.), and New York Attorney General Letitia James (D) of falsely listing certain properties as their “primary residence,” a rarely prosecuted discrepancy. Trump has been turning it into a centerpiece of his attacks on his perceived enemies.

Investigative reporting has revealed that the Trump administration’s one-sided mortgage fraud crusade has significant blind spots: Trump reportedly denied or excused similar errors on forms by his administration’s cabinet members and close relatives of Federal Housing Finance Agency Bill Pulte, who depicts himself on social media as an anti-mortgage fraud sheriff.

Cook calls the accusations a pretext to gin up her termination from the position “for cause,” in order to eliminate a Democratic nominee and seize control of the board, but the ruling doesn’t wade into Trump’s latest tool against his rivals.

“For the purposes of this motion, the Court bases its holding on the conclusion that President Trump has stated a legally impermissible reason for firing Cook and does not also need to reach Cook’s argument that the President’s decision failed to show ‘cause’ under the Federal Reserve Act because the asserted basis for cause was ‘pretextual,’” Cobb wrote in a footnote.

‘For cause’ means conduct in office

In her ruling, Judge Cobb found that the merits of Trump’s allegations are not important as a legal matter because “cause” only relates to conduct in office.

“The best reading of the ‘for cause’ provision is that the bases for removal of a member of the Board of Governors are limited to grounds concerning a Governor’s behavior in office and whether they have been faithfully and effectively executing their statutory duties,” the opinion states. “‘For cause’ thus does not contemplate removing an individual purely for conduct that occurred before they began in office. In addition, the Court finds that the removal also likely violated Cook’s procedural rights under the Fifth Amendment’s Due Process Clause.”

The judge added that a mortgage fraud conviction while in office would be a fireable offense.

“For example, an approach that focuses on the individual’s in-office conduct and performance would certainly permit ‘for cause’ removal where an officer is convicted of a serious crime and incarcerated while in office, even if that conviction was the result of earlier conduct,” the ruling states. “Such a conviction would obviously interfere with the ability of an officer to effectively and faithfully carry out their in-office duties. Indeed, standing alone, a Governor’s subsequent conviction would be a significant event occurring in office, regardless of when the conduct giving rise to that conviction occurred.”

‘Due process’ means more than a social media reply

The Trump Justice Department’s claim that Trump put Cook on notice of the accusations against her on social media landed in court like a lead balloon.

“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,” her ruling continues. “At no point did President Trump indicate that Cook would be provided an opportunity to argue that the allegations were untrue or did not merit removal, or invite Cook to submit such evidence. … Instead, shortly after Director Pulte’s social media post was made public, President Trump called for Cook to resign—a far cry from inviting an opportunity to contest the allegations.”

Cobb denied the Trump Justice Department’s request to pause the ruling pending an appeal.

“The Court recognizes that this case involves the first ‘for cause’ removal of a Federal Reserve Board Governor, and as a result, raises important matters of first impression,” she wrote. “However, for the reasons stated in this opinion, the Court finds that the balance of equities would not be in the Government’s favor.”

Read the full ruling here.