The Supreme Court on Monday blocked President Donald Trump from immediately firing a Democratic appointee to the Federal Reserve Board, a major ruling that preserves the independence of the powerful central bank, which guides the US economy.
The 5-4 decision is a setback for Mr Trump, who has complained that the Fed is not dropping interest rates quickly enough and has pushed aggressively to exert greater control over federal agencies that Congress set up to be insulated from influence by the chief executive.
The President tried to oust Lisa Cook, alleging she committed mortgage fraud, and the Justice Department separately launched – and later dropped – a probe into whether then-Federal Reserve Chair Jerome H. Powell gave misleading statements to Congress. Both deny any wrongdoing and accused Mr Trump of seeking to wrest control of the central bank to carry out his policy goals.
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Mr Trump’s moves have spooked some economists, who fear keeping interest rates artificially low could unleash long-term inflation. The court challenge has been closely watched by businesses and the markets because of its ramifications for the economy.
A group of justices from across the court’s ideological spectrum ruled Ms Cook could keep her job while a lawsuit challenging her dismissal plays out in the courts. The case could take months or years to resolve and could eventually appear before the high court again on appeal.
The conservative majority on the Supreme Court has repeatedly embraced Mr Trump’s bids to fire the heads of independent agencies in emergency rulings over the past year. The justices maintained course when it came to the Fed.
The majority wrote in its ruling that the Fed has a unique structure that is different from agencies like the National Labor Relations Board that were the subject of earlier cases, so the president does not have the same authority to remove its leaders.
Some legal experts expected the ruling because the justices had telegraphed the logic in a decision in an earlier case, allowing Mr Trump to fire a pair of independent regulators.
Congress created the Fed to be independent of the president, so it could make difficult decisions – such as raising interest rates – that are good for the health of the economy but may not be politically popular. Its mission is to keep prices stable and ensure maximum employment.
Mr Trump is the first president in the Fed’s 112-year history to try to fire one of its board members. In August, Mr Trump alleged that Ms Cook claimed two homes as primary residences to get a better mortgage rate. In filings with the Supreme Court, Ms Cook “unequivocally” denies the allegations, and some documents list one of the properties as a “vacation home.”
Ms Cook, who was initially appointed to the Fed board by President Joe Biden in 2022 and renominated to a 14-year term in 2023, is the first Black woman to hold the position.
The high court case revolved around whether Mr Trump’s attempt to fire Ms Cook complied with the Federal Reserve Act, which says Fed board members can only be ousted “for cause.”
Days after Mr Trump announced on social media in August that he was firing Ms Cook, she sued in federal court. Her suit argues that Mr Trump’s accusations did not meet the standard for “for cause” removal because the allegations occurred before she was on the Fed board and had not been proved. Her attorneys also said she had not been given due process to defend herself.
A federal judge in DC sided with Cook, allowing her to remain on the job temporarily. A divided appeals court affirmed that decision, before the Trump administration appealed to the Supreme Court. The justices ruled in October that Ms Cook could continue at the Fed while they considered her case.
During arguments in January, Solicitor General D. John Sauer told the justices that the mortgage allegations gave Trump reason enough to fire Ms Cook and that the courts did not have the authority to second-guess his determination.
“The American people should not have their interest rates determined by someone who was, at best, grossly negligent in obtaining favorable interest rates for herself,” Mr Sauer said.
Paul D. Clement, an attorney for Ms Cook, said the justices would be rash to rule on the Trump administration’s emergency request to oust Cook from her job without the benefit of additional fact-finding and legal proceedings.
“There is no reason to abandon more than 100 years of central bank independence on an emergency application,” Mr Clement said.
Eight of the nine justices asked probing questions of Mr Sauer’s arguments. Conservative Justice Brett M. Kavanaugh was particularly pointed, telling Mr Sauer his positions in the case “would weaken if not shatter the independence of the Federal Reserve.”
Justice Kavanaugh said presidents could concoct reasons to fire Fed governors with dangerous implications for the central bank. “What are we doing when we have a system that incentivizes that?” Justice Kavanaugh asked.
Both Ms Cook and Mr Powell attended the arguments, as did former Federal Reserve chair Ben S. Bernanke, signalling the importance of the case. Every living former Fed chair at the time – Mr Bernanke, Alan Greenspan and Janet L. Yellen – and six former Treasury secretaries also submitted a friend-of-the-court brief urging the justices to back Cook. Greenspan has since died.
“Allowing the government to remove a member of the Board of Governors for the first time in the nation’s history, while under the cloud of legal challenge, will erode public confidence in the Fed’s independence and threaten the long-term stability of our economy,” the officials wrote.
Some legal experts said administration officials may have damaged their chances at winning the Supreme Court case by launching the criminal probe of Mr Powell, creating the impression that Mr Trump’s efforts were more about reshaping the Fed’s board than any malfeasance.
The Justice Department investigated whether Mr Powell misled Congress about a $2.5 billion renovation of the Fed’s headquarters. Mr Powell has forcefully pushed back on those allegations, calling them “pretexts” in a video posted on the Fed’s website. The Justice Department dropped the case in April after a key senator demanded the move as Trump sought Senate confirmation for a successor to Powell, Kevin Warsh.
The Senate voted to confirm Mr Warsh and he was sworn in in May. He replaces Mr Powell as chair, but Mr Powell plans to remain on the board through the end of his term in 2028.
“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,” Mr Powell said.
A federal judge in DC quashed a pair of subpoenas tied to the Powell investigation, ruling the inquiry lacked merit. US Attorney Jeanine Pirro said the Justice Department would appeal the ruling.
The justices are also ruled Monday on another closely related case this term. The court decided to overturn a nearly century-old precedent that allows Congress to limit the ability of the president to fire the heads of independent agencies. Such a ruling ushered in one of the largest changes to the structure of government in decades.
The case arose over Mr Trump’s attempt to remove a Democratic member of the Federal Trade Commission.
The justices have also recently checked Mr Trump’s bid to enlarge presidential power in two cases. They struck down most of his sweeping tariffs in February and blocked his deployment of National Guard troops to Chicago in December.
