Federal Reserve Governor Lisa Cook Can Remain in Office
WASHINGTON — An appeals court ruled Monday that Lisa Cook can remain a Federal Reserve governor, rebuffing President Donald Trump’s efforts to remove her just ahead of a key vote on interest rates.
The Trump administration is expected to quickly turn to the Supreme Court in a last-ditch bid to unseat Cook. The Fed’s next two-day meeting to consider its next interest rate move begins Tuesday morning. And Cook’s lawsuit seeking to permanently block her firing must still make its way through the courts.
The White House campaign to unseat Cook marks an unprecedented bid to reshape the Fed’s seven-member governing board, which was designed to be largely independent from day-to-day politics. No president has fired a sitting Fed governor in the agency’s 112-year history.
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Background on the Federal Reserve
The Federal Reserve, also known as the Fed, is the central bank of the United States. It was created in 1913 to provide a safer and more flexible monetary system. The Fed is responsible for setting interest rates, regulating banks, and maintaining the stability of the financial system.
The Fed has a seven-member governing board, which is responsible for making decisions about interest rates and other monetary policies. The board members are appointed by the President and confirmed by the Senate. They serve 14-year terms, which helps to ensure the Fed’s independence from day-to-day politics.
Court Ruling and Its Implications
Separately, Senate Republicans on Monday confirmed Stephen Miran, Trump’s nominee to an open spot on the Fed’s board. Barring any last-minute intervention from the Supreme Court, the Fed’s interest rate setting committee will meet Tuesday and Wednesday with all seven governors and the 12 regional bank presidents.
Twelve of those 19 officials will vote on changing the central bank’s short-term rate: All seven governors plus five regional presidents, who vote on a rotating basis.
Chair Jerome Powell signaled in a high-profile speech last month the Fed would likely cut its key rate at this meeting, from about 4.3% to 4.1%. Other borrowing costs, such as mortgage rates and car loans, have already declined in anticipation of the cut and could move lower.
Courtroom Background
Trump sought to fire Cook Aug. 25, but a federal judge ruled last week that the removal was illegal and reinstated her to the Fed’s board. Trump appointee Bill Pulte has accused Cook of mortgage fraud because she appeared to claim two properties as “primary residences” in July 2021, before she joined the board. Such claims can lead to a lower mortgage rate and smaller down payment than if one of them was declared as a rental property or second home. Cook has denied the charges.
In a 2-1 decision, the appeals court found that Cook’s due process rights were violated because the administration did not give her a formal opportunity to respond to the charges.
The attempt to fire Cook is seen by many legal scholars as a threat to erode the Fed’s longtime political independence. Economists prefer independent central banks because they can do unpopular things like lifting interest rates to combat inflation more easily than elected officials.
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Potential Consequences of the Fed Falling Under White House Control
Many economists worry that if the Fed falls under the control of the White House, it will keep its key interest rate lower than justified by economic fundamentals to satisfy Trump’s demands for cheaper borrowing. That could accelerate inflation and could also push up longer-term interest rates, such as those on mortgages and car loans. Investors may demand a higher yield to own bonds to offset greater inflation in the future, lifting borrowing costs for the U.S. government and the entire economy.
Separately, Miran chairs the White House’s Council of Economic Advisers and said earlier this month he would take unpaid leave but otherwise keep his job while serving on the Fed’s board. It will be the first time in decades that an executive branch official has served at the Fed.
Miran has been appointed to finish a term that expires in January, but he could remain in the seat if no replacement is chosen.
What Cook Says
Cook has denied any wrongdoing and has not been charged with a crime. According to documents obtained by The Associated Press, Cook did specify that her Atlanta condo would be a “vacation home,” according to a loan estimate she obtained in May 2021. And in a form seeking a security clearance, she described it as a “2nd home.” Both documents appear to undercut the administration’s claims of fraud.
Last week, U.S. District Court Judge Jia Cobb ruled that the administration had not satisfied a legal requirement that Fed governors can only be fired “for cause,” which she said was limited to misconduct while in office. Cook did not join the Fed’s board until 2022.
In their emergency appeal, Trump’s lawyers argued that even if the conduct occurred before her time as governor, her alleged action “indisputably calls into question Cook’s trustworthiness and whether she can be a responsible steward of the interest rates and economy.”
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Trump has repeatedly attacked Powell and the other members of the Fed’s interest-rate setting committee for not cutting the short-term interest rate they control more quickly. Trump has said he thinks it should be as low as 1.3%, a level that no Fed official and few economists support.
Cook is the first Black
