The legality of President Donald Trump’s push to fire Federal Reserve governor Lisa Cook was already one of the biggest issues of the Supreme Court term before a bombshell dropped a little over a week ago.
Fed Chair Jerome H. Powell revealed on Jan. 11 that he was under criminal investigation and accused Trump appointees of using the investigation to undermine the independence that has allowed the powerful central bank to guide the economy in the interest of the public rather than the president.
The development raised the already high stakes as the Supreme Court hears arguments in Cook’s case Wednesday. When they decide Cook’s fate, the justices could also help determine Powell’s future with the Fed, whether Trump can bend the bank to his will and ultimately the direction of the economy. A decision is expected by this summer.
“It’s no exaggeration to say that the economic and constitutional foundations of the country are on trial in this case,” said Lev Menand, a Columbia University law professor and former Treasury adviser.
Powell plans to attend the arguments, signaling the importance of the case, according to a person familiar with his plans who spoke on the condition of anonymity because they were not authorized to speak on the record.
Many developed countries have independent central banks, so they can set interest rates based on economic conditions rather than the considerations of leaders seeking political advantage. Otherwise, politicians would want central banks to keep rates artificially low to juice the economy, which can lead to inflation in the long run.
Menand also worries that a president with control of the Fed could abuse the “central bank toolkit” to pick winners and losers in the financial sector, weaponize lending and use the bank to fund programs for which Congress has not appropriated money.
Trump has made no secret that he would prefer the Fed to lower interest rates more quickly. He has regularly attacked Powell and called for his ouster. In an interview this month, he called the Fed Chair “crooked” and “incompetent.” He added later: “That jerk will be gone soon.”
In August, amid an earlier round of attacks on Powell, Trump attempted to remove Cook. His rationale for the firing was that she allegedly committed mortgage fraud for allegedly claiming two homes as her primary residence to get a lower interest rate. In a letter, Trump said the conduct called into question Cook’s “competence and trustworthiness as a financial regulator.”
Cook’s attorneys denied the charges, writing “there is no evidence” she made false representations relating to the mortgages, which she obtained before she was appointed to the Fed Board in 2022. They said Trump manufactured a reason to get rid of her, which would give him an additional vacancy to fill on the board.
Trump is asking the court to dismiss Cook “without process based on flimsy, unproven allegations of pre-office wrongdoing — allegations conveniently timed following the President’s criticism of the Board’s policy decisions,” her lawyers said.
No president in the 112-year history of the Fed has tried to fire a governor from the seven-member board.
When asked about historic parallels to Trump’s campaign against bank officials, Frederic Mishkin, a Columbia University professor and former Fed governor, said simply: “None.” The only superficial analogues came decades ago.
President Lyndon B. Johnson invited Fed Chair William McChesney Martin to his Texas ranch in 1965 and unsuccessfully badgered him to lower interest rates to help fund the Vietnam War effort. In 1972, President Richard M. Nixon had better luck pressuring Fed Chair Arthur F. Burns to lower interest rates before the presidential election. Burns’s moves were blamed for helping spur high inflation that lasted for more than a decade.
Critics like Alan S. Blinder, an economist and former vice chair of the Fed, said the president’s efforts carry similarly serious risks for the economy.
“We’ve seen this kind of playbook before, but in other countries,” Blinder said. “Argentina did the exact same thing in the early 2000s when they wanted to get rid of the president of the central bank. They trumped up charges against him and got rid of him. It led to a complete collapse of their financial system and economy.”
The issue in Cook’s case is whether Trump has met the standard under the Federal Reserve Act, which says Fed governors can only be fired “for cause.”
Cook sued to keep her job. A federal judge blocked Cook’s removal, finding Trump had not met the “for cause” bar or afforded Cook a chance to defend herself. A divided appeals court left that ruling in place. The Trump administration appealed to the Supreme Court.
The Court allowed Cook to remain on the job in a temporary October ruling, rejecting Trump’s request to allow her firing to take effect immediately. The justices will now determine whether she can stay on while her case challenging her dismissal works its way through the courts.
A win by Trump could embolden the president to try to remove Powell or other board members, giving him a majority to reshape Fed policy.
Solicitor General D. John Sauer argued in filings with the high court that the alleged mortgage fraud by Cook constitutes sufficient reason to remove her. He also asserted that the courts do not have the authority to second-guess Trump’s determination.
“Put simply, the President may reasonably determine that interest rates paid by the American people should not be set by a Governor who appears to have lied about facts material to the interest rates she secured for herself,” Sauer wrote.
Cook’s attorneys counter in court filings that the court does have the power to review Trump’s decision. Legal precedents show cause for firing a board member can only arise from conduct that occurred while she was on the board, not before, they argue. They also say she was not afforded due process.
The case is not the only one that could affect Cook’s tenure with the bank.
The justices are also weighing whether to strike down a 90-year-old precedent that limits the president from removing the heads of independent agencies. The justices seemed inclined last month to allow Trump to fire Rebecca Slaughter, a Democrat on the Federal Trade Commission, without cause. A decision could also come by June or July.
Such a ruling might clear the way for Trump to fire Cook without cause as well, but the justices have indicated they consider the Fed to be different from independent agencies like the FTC, Federal Communications Commission and the Securities and Exchange Commission.
During the arguments in Slaughter’s case in December, conservative Justice Brett M. Kavanaugh suggested the court might create a special rule protecting the Fed. In an unsigned opinion in May allowing Trump to fire members of the Merit Systems Protection Board and the National Labor Relations Board, the justices made a similar point.
“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,” the opinion said.
Legal scholars have sharply questioned that logic, saying its hard to see how the Fed is legally different.
“They have been twisting themselves into a pretzel to try to distinguish the Federal Reserve from the Federal Trade Commission,” Rohit Chopra, former director of the Consumer Financial Protection Bureau, said of the Supreme Court.
Still, many legal analysts say the justices’ signals indicate Cook will likely prevail. Administration officials have also damaged their chances of winning by launching the criminal probe of Powell, some said.
“This is a misstep by the administration,” Menand said. “It tends to give the impression this is about taking control of the Federal Reserve board and it’s not about the president saying one particular official was engaged in malfeasance of some kind.”
The Justice Department is examining Powell’s testimony before the Senate Banking Committee last June about a $2.5 billion renovation the Fed’s headquarters. The investigation, launched in November by U.S. Attorney for the District of Columbia Jeanine Pirro, a Trump ally, is aimed at whether Powell misled Congress about the project’s scope and costs.
In an unusual video released Jan. 11, Powell forcefully pushed back on those allegations, calling them “pretexts.”
“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 in the video.
Powell’s four-year term as chair expires May 15, but his seat on the board of governors runs through January 2028. Traditionally, Fed chairs have departed the board when their leadership term ends, allowing the president to fill the vacancy. But Powell has repeatedly declined to say whether he’ll follow that precedent.
The criminal probe may make Powell more likely to remain on the board to defend the Fed’s independence and deny Trump the ability to appoint another ally, according to several former central bank officials and economists.
During his first term, Trump appointed two of the current seven governors: Michelle Bowman and Christopher Waller. He added a third, White House aide Stephen Miran, in September.
The Fed cut its benchmark interest rate three times at the end of last year to a range of 3.5 to 3.75 percent, after a lengthy pause to assess how Trump’s trade, immigration and other policies would weigh on the economy. Policymakers have signaled a pause for the first part of 2026. Trump has pushed for rates as low as 1 percent.
Inflation remains above the Fed’s 2 percent target — consumer prices rose 2.7 percent in December from a year earlier, while core inflation, which excludes volatile food and energy costs, increased 2.6 percent.
Trump has said he has chosen Powell’s successor, with an announcement expected as early as this month. Kevin Hassett, director of the White House National Economic Council, has been widely viewed as the front-runner, though the president has also considered other candidates.
Since the announcement of the Powell investigation, however, some key Republican senators have said they might block another Trump appointment. And on Friday, Trump suggested he might not appoint Hassett.
“I actually want to keep you where you are, if you want to know the truth,” he said to Hassett during a White House event.
Whatever the Supreme Court decides, there’s already been a dangerous erosion of the separation of the bank and president, Chopra said.
“We are already starting to see a Federal Reserve that is not truly independent,” Chopra said. “There are many … parts of their mandate where they have been following closely the political preferences of the president. Regardless of the ruling, there is more trouble to come.”
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