President Donald Trump’s attempt to dismiss Lisa Cook, a member of the Federal Reserve Council (Fed), must become an unprecedented judicial battle on the independence of the world’s most powerful central bank.
In a letter released on Monday (25), citing an accusation of mortgage fraud that has not yet resulted in formal complaint. Cook reacted on the same day, saying that the president has no authority to remove it and that he will remain in his duties.
Understand Trump’s justification, says American law about the case and what to expect for the next steps of this new chapter of pressure on the US BC.
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Can Trump fire a Fed Director?
Not unilaterally. The 1913 Federal Reserve Law establishes that governors can only be removed “by just cause”, a concept historically restricted to bad conduct or severe neglect.
What is Trump’s justification?
He cited an accusation of mortgage fraud against Lisa Cook. The case was referred to the Justice Department, but there is no formal complaint, which raises doubts about whether there is enough legal basis.
What the law says
Since 1913, the legislation governing the Fed determines that members of the Board of Governors can only be removed “by just cause”, a historical interpretation that means bad conduct or severe neglect. Jurists and economists have pointed out that, so far, there is no proof of irregularity that supports the justification presented by Trump.
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In parallel, experts resemble a classic precedent for the Supreme Court: The Humphrey’s Executor V. United States (1935), in which judges decided that President Franklin D. Roosevelt had acted illegally by removing a FTC commissioner only for political disagreement. This understanding has protected, for decades, independence from regulatory organs such as the Fed.
Can this understanding change?
Possibly. In 2020, the Supreme Court opened a breach to expand the presidential power of dismissing heads from independent agencies, but stressed that the Fed is a special institution in the American structure. That is, the Court has not yet made direct decision on the case of the Central Bank.
What can happen
Cook may appeal to court to maintain office. A judge will have to decide whether there is a legal basis to characterize “just cause”. If it remains at the post during the process, the government must resort to the Supreme Court.
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In recent years, however, the court has given signs of flexing this protection. By 2020, a decision involving the consumer’s financial protection bureau opened a gap for presidents to have greater power to dismiss chiefs from independent agencies. Still, ministers have emphasized in parallel votes that the Fed occupies a singular position in the government structure and may deserve additional safeguards.
What is at stake
If confirmed, Cook’s removal would make room for Trump to consolidate majority nominees on the Fed Council, expanding their influence on budget, personnel and choice of regional presidents of the institution. This could put the central bank’s autonomy in check in a moment of tension in the markets.
“The illegal attempt to fire Lisa Cook is an authoritarian power outlet that violates the law of the Federal Reserve and needs to be reversed in the courts,” said Senator Democrat Elizabeth Warren, a member of the Senate Bank Committee.
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(com New York Times)
