A FEDERAL JUDGE on Tuesday temporarily blocked President Donald J. Trump from removing US Federal Reserve Governor Lisa Cook, an early setback for the White House in an unprecedented legal battle that could upend the central bank’s long-held independence.
The preliminary ruling by US District Judge Jia Cobb in Washington, DC found that the Trump administration’s claims that Ms. Cook committed mortgage fraud prior to taking office were likely not sufficient grounds for her removal.
Ms. Cook denies any wrongdoing.
“President Trump has not identified anything related to Cook’s conduct or job performance as a Board member that would indicate that she is harming the Board or the public interest by executing her duties unfaithfully or ineffectively,” Ms. Cobb wrote in her ruling.
Mr. Trump moved to fire Ms. Cook in late August, but the Fed has said she remains in her position. The Fed declined to comment on the decision.
Ms. Cobb’s ruling prevents the Fed from following through on Ms. Cook’s firing while her lawsuit moves forward.
The case, which will likely end up before the US Supreme Court, has ramifications for the Fed’s ability to set interest rates without regard to politicians’ wishes, widely seen as critical to any central bank’s ability to keep inflation under control.
Mr. Trump has demanded that the US central bank cut rates immediately and aggressively, berating Fed Chair Jerome Powell for his stewardship over monetary policy. The central bank is expected to deliver a rate cut at its Sept. 16-17 policy meeting.
The White House had no immediate comment. Mr. Trump did not respond to a reporter’s question about the ruling.
“This ruling recognizes and reaffirms the importance of safeguarding the independence of the Federal Reserve from illegal political interference,” Ms. Cook’s lawyer Abbe Lowell said in a statement.
The law that created the Fed says governors may be removed only “for cause,” but does not define the term nor establish procedures for removal. No president has ever removed a Fed governor, and the law has never been tested in court.
Ms. Cobb found that the “best reading” of the law is that it only allows a Fed governor to be removed for misconduct while in office. The mortgage fraud claims against Ms. Cook all relate to actions she took prior to her US Senate confirmation in 2022.
Mr. Trump and William Pulte, the Federal Housing and Finance Authority director appointed by the President, say Ms. Cook inaccurately described three separate properties on mortgage applications, which could have allowed her to obtain lower interest rates and tax credits.
The US Justice department has also launched a criminal mortgage fraud probe into Ms. Cook and has issued grand jury subpoenas out of both Georgia and Michigan, according to documents seen by Reuters and a source familiar with the matter.
Ms. Cook sued Mr. Trump and the Fed, saying the claims did not give Mr. Trump the legal authority to remove her and were a pretext to fire her for her monetary policy stance.
Ms. Cook, the first Black woman to serve as a Fed governor, has denied the fraud claims in court filings, saying that she “did not ever commit mortgage fraud.”
But she has said that even if the allegations were true, it would not be grounds for removal because the alleged conduct occurred before she was confirmed by the US Senate.
The Trump administration has argued that the President has broad discretion to determine when it is necessary to remove a Fed governor, and that courts lack the power to review those decisions. — Reuters
