MNI: Legal Experts Say Fed's Cook Will Prevail Against Trump

Federal Reserve Governor Lisa Cook is likely to ultimately prevail in a court challenge to President Donald Trump's effort to fire her from the central bank's board, fending off his latest attempt to control U.S. monetary policy, former Fed lawyers and legal scholars told MNI. 

Cook, through her lawyer, Abbe Lowell, said Tuesday she plans to seek an order from the court to keep doing her job and that Trump's attempted removal “lacks any factual or legal basis.” 

The lower court could side with her quickly, affirming her right to keep working while the facts of the mortgage fraud allegations against her are litigated, the lawyers said. From there, the legal battle could go in several directions and could well end up at the Supreme Court, which has already hinted in a decision earlier this year that the Fed is special among independent federal agencies, they said.

"This will be a defining case. What is the definition of 'cause'? Assume Congress can restrict the president to fire 'for cause' at the Federal Reserve, what does that mean?" former general counsel to the Fed Board Scott Alvarez told MNI. 

Commenting on the Cook case, the Federal Reserve noted that “Congress, through the Federal Reserve Act, directs that governors serve in long, fixed terms and may be removed by the president only 'for cause’.” The meaning of this term is however not clearly defined. (See MNI INTERVIEW: Powell Would Win In Court If Trump Fires Him)

"The Supreme Court told us in the Wilcox case that the Fed is even more independent than the other independent agencies. That means the threshold of 'cause' is going to be higher. It's going to have to be a pretty serious offense, with serious proof the offense was committed, and a pretty serious connection to the nature of the job as a Fed Board member," Robert Hockett of Cornell Law School said in an interview.

"It’s very clear that Trump is not concerned about any potential mortgage fraud. It’s clearly a pretext," he said. "A pretextual claim ain't going to cut it." 

CASE FOR FRAUD? 

Trump's attempt to fire Cook is based on mortgage documents that show she filed two loan applications on primary residences within weeks in 2021, before she began her tenure at the Fed. 

Having two primary residences is not uncommon for public officials and others who work at a location different from where they reside, Hockett said. To prove fraud, the borrower must have concealed from her lenders that she has two primary residences in order to get a better rate, and Cook's financial disclosures prove otherwise, he said. 

The mortgage rates she has paid were higher than the national average at the time, "so there's no indication she got a break from a lender," he said. "They can’t show any mortgage fraud."  

CREDIBILITY AT STAKE

Cook, whose term is supposed to last through 2038, is "on solid legal ground and much is on the line," Cornelius Hurley, former assistant general counsel of the Fed Board, told MNI. "She’s a more significant target than Powell because Powell can stay on as a governor after his term as chairman ends. Cook’s seat will give Trump complete control of the Fed and the FOMC." 

If Trump prevails, he could have four appointees on the seven-member Fed Board, and potentially exert influence over the Fed's 12 regional reserve banks, whose five-year terms are all up for renewal in February. The law is unclear as to whether the Fed Board could replace the presidents at will or for cause, and the Board has never done so.     

"Monetary policy will reside at the White House. The role of the dollar as the world’s reserve currency will be finished. The cost of servicing the United States’ debt will soar," Hurley said. 

Alvarez said he worries about the Fed's credibility a lot.

"If this means someone can be removed just for a rumor or allegation not founded or proven, then there is no central bank independence. Anybody can be removed any time, and you can make up some reason and call it 'cause.' The markets have to act based on data, not politics. This is really an attempt to shape monetary policy," Alvarez said. 

Trump's power grab won't stop here “unless there is a clear rebuke from the courts reinstating Cook, that is upheld by the Supreme Court,” Lev Menand of Columbia Law School told MNI.  (See MNI INTERVIEW: Powell Firing Would Set Off Legal Battle-Menand)