The Supreme Court on Wednesday appeared likely to block President Donald Trump from firing Democratic-appointed Lisa Cook from the Federal Reserve Board while a lawsuit challenging her removal plays out, a move that would prevent Trump from exerting greater influence over the powerful central bank that guides the economy.
The president has complained loudly for months that the Fed is not dropping interest rates quickly enough. He has tried to oust Cook over mortgage fraud allegations, and his Justice Department has launched a criminal probe of Fed Chair Jerome H. Powell over whether he lied to Congress.
Both Cook and Powell have denied wrongdoing and accused Trump of manufacturing pretexts to undermine the independence of the central bank to achieve his policy goals. The campaign has alarmed many economists, who fear keeping interest rates artificially low could spark long-term inflation.
The Supreme Court’s ruling, which is expected in the coming weeks or months, is one of the most significant tests to date of Trump’s push to expand presidential power and place parts of the government that for decades have operated independently under tighter control. It could also have major ramifications for the economy and is being closely watched by businesses and the markets.
In a sign of the stakes, both Powell and Cook attended the arguments.
The court has repeatedly backed Trump’s bids to fire the heads of independent agencies in emergency rulings in his second term, but in a major shift Wednesday the justices seemed ready to draw a red line around the Fed. Nearly all of the justices asked skeptical questions of Solicitor General D. John Sauer, who defended Trump’s attempt to fire Cook.
Liberal Justice Sonia Sotomayor said the independence of the Fed is tantamount because of the central bank’s vast economic powers. She said the “world and the public” would benefit from the lower courts exploring the significant factual and legal questions that remain in the unprecedented case.
“That independence is harmed if we decide these issues too quickly and without due process,” Sotomayor said.
Congress set up the Fed to be insulated from control by the president so it could make difficult decisions, such as raising interest rates, that might not be politically popular but that are good for the overall health of the economy.
No president in the 112-year history of the Fed had tried to fire a governor from the board before Trump targeted Cook in August. He alleged that she claimed two homes as primary residences at the same time to get a better mortgage rate. Cook denies the allegations.
The issue before the justices was whether the effort to fire her complied with the Federal Reserve Act, which says Fed board members can be removed only “for cause.” A federal judge and a divided appeals court temporarily blocked Cook’s removal, prompting the administration to appeal to the high court.
In October, the justices allowed Cook to temporarily remain in her job. They will now decide whether she can stay on while the case plays out in court, a process that could take years.
Solicitor General D. John Sauer told the justices that the alleged mortgage fraud by Cook met the legal bar to remove her and that the president had lost confidence in her ability to do the job. He also said courts did not have the authority to review the president’s decision.
Paul D. Clement, Cook’s attorney, said judges did have the power to review Cook’s ouster. He also said the mortgage fraud allegations, even if true, would not meet the legal bar to fire Cook, because she applied for her mortgages before she was appointed to the Fed by President Joe Biden in 2022.
He added that Cook was never given the opportunity to defend herself.
Lev Menand, a Columbia University law professor and former Treasury adviser, said he sees three possible outcomes for the case: a ruling that the Constitution does not allow the Fed independence from the president; a decision that grants only weak protections against firing Fed board members; or one in which Cook wins and the Fed has strong removal safeguards.
“The court has a lot of space here to define how robust Fed independence really is, if it exists at all,” Menand said.
Some legal experts said administration officials may have damaged their chances by launching the criminal probe of Powell earlier this month, creating the impression that Trump’s efforts are more about reshaping the Fed board and policy than any alleged malfeasance by its leaders.
The Justice Department is probing whether Powell misled Congress about a $2.5 billion renovation of the Fed’s headquarters. Powell forcefully pushed back on those allegations, calling them “pretexts” in a video posted on the Fed’s website.
“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” Powell said.
The arguments Wednesday were a notable shift from a case in December dealing with the legality of Trump’s firing of a Democrat from the Federal Trade Commission without cause. That case could also affect Cook’s job at the Fed.
In that case, Sauer told the justices that Trump had the inherent authority under the Constitution to remove members of independent agency boards, even though Congress set up those agencies to operate at a remove from the executive.
Some of the court’s conservative justices and many in the Trump administration have expressed support for an idea known as unitary executive theory, which holds that the Constitution gives the president broad authority to fire officials and that Congress cannot limit it.
Agencies like the FTC, Securities and Exchange Commission, and Federal Election Commission operate as “a headless fourth branch” of government not fully accountable to the voters who elected the president, Sauer told the justices in the FTC case.
The conservative majority on the court seemed to embrace that argument, possibly clearing the way for them to strike down a 90-year-old precedent, known as Humphrey’s Executor, that says that Congress could limit the president’s ability to dismiss the heads of independent agencies.
“I think broad delegations to unaccountable independent agencies raise enormous constitutional and real-world problems for individual liberty,” said Justice Brett M. Kavanaugh.
But Kavanaugh also suggested that the court sees the central bank as different and might carve out a rule protecting it. Whether it affects the Fed, a ruling striking down Humphrey’s Executor would be one of the largest shifts to the structure of government in decades. A decision in that case is also expected by the summer.
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