Federal Reserve Inquiry Clouds Trump’s Supreme Court Bid to Oust Lisa Cook

The court is set to hear Ms. Cook’s case challenging her firing as the Justice Department investigates Jerome H. Powell, the central bank chair.

The Supreme Court’s review this week of President Trump’s attempt to fire a member of the Federal Reserve was always going to pose a key test of how much leeway the justices would give the president to remake and control the central bank.

Then the Justice Department issued subpoenas this month as part of a criminal investigation into the Fed chair, Jerome H. Powell.

Legal experts said that development threatened to complicate the Trump administration’s case, making a potentially difficult-to-win case even more challenging.

Mr. Trump’s solicitor general will argue to the court on Wednesday that the president had a valid reason to fire Lisa Cook, who has been a Fed governor since 2022, because she allegedly engaged in mortgage fraud. She sued after Mr. Trump tried to oust her in August, arguing that the law that established the Fed allowed presidents to dismiss members only “for cause.”

Ms. Cook, who has not been charged with wrongdoing, denies the allegations, which relate to loan documents she signed before joining the Fed.

Analysts say the Powell subpoenas could bolster the sense that the Trump administration ginned up a pretext to oust Ms. Cook as a way to force the central bank to lower borrowing costs.

The move against Mr. Powell “undermines the administration’s contention that this is all about Lisa Cook’s conduct and not about her votes on monetary policy,” said Lev Menand, a Columbia University law professor who is closely tracking the case.

“It all tends to suggest that the goal here is to take over the Fed,” he said.

Mr. Powell will attend Wednesday’s arguments, along with Ms. Cook, according to a person familiar with the matter.

Central bank governors serve staggered 14-year terms “unless sooner removed for cause by the president,” according to federal law. Congress put those protections in place in 1913 and renewed them in 1935 to ensure the independence of the institution and allow officials to set monetary policy without political interference from the president.

The Justice Department is investigating whether Mr. Powell misled Congress when questioned in June about extensive renovations of the Fed’s headquarters in Washington that are running hundreds of millions of dollars over budget.

Mr. Powell has aggressively pushed back, saying the investigation 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.”

That is the same argument Ms. Cook’s lawyers will make during Wednesday’s argument. In filings, they have said the mortgage fraud allegation is “paper-thin, unproven” and a “manufactured” pretext for policy disagreements.

Mr. Trump had repeatedly vented his frustration with the Fed’s approach to monetary policy and Mr. Powell, whom Mr. Trump promoted to chair during his first term. Mr. Powell, a registered Republican, was initially tapped to join the Fed as a governor by President Barack Obama.

Despite his complaints about Mr. Powell, the president moved to fire Ms. Cook, a nominee of President Joseph R. Biden Jr., citing the allegations that she falsified bank documents to acquire more favorable loan terms.

Former top Fed and Treasury officials and Ms. Cook’s legal team have warned the Supreme Court that permitting Mr. Trump to fire her while her litigation is underway would spur economic turmoil and undermine public confidence in the central bank.

The Justice Department argues that Mr. Trump has cited a “cause” to fire Ms. Cook, and that the court cannot second-guess the specific reason the president has identified.

How much discretion presidents have to remove Fed officials, what counts as cause, and whether officials are entitled to notice and process before being ousted will be key questions for the justices at Wednesday’s argument.

The Trump administration is not challenging the constitutionality of the law requiring the president to have cause to fire Ms. Cook. That distinguishes the case from one the Supreme Court heard in December, in which the administration argued that laws requiring the president to identify a rationale before firing other independent regulators infringed on the president’s constitutional authority.

The Supreme Court has been overwhelmingly receptive to Mr. Trump’s efforts to remove regulators from other independent agencies. But the justices have repeatedly signaled that they view the Fed differently.

In cases involving the National Labor Relations Board, the Federal Trade Commission and the Merit Systems Protection Board, the justices allowed Mr. Trump to fire officials while their litigation was underway, despite congressionally imposed limits on the president’s removal power.

In contrast, the court said Ms. Cook may remain an active member of the board while her case is considered. The justices also went out of their way to suggest that the Fed may stand apart from other agencies, writing in an order in May that it is a “uniquely structured, quasi-private entity” with a distinct history.

The newly revealed subpoenas and investigation into Mr. Powell are not officially part of the record before the Supreme Court in Ms. Cook’s case, but experts said atmospherics can matter.

In April 2004, photographs showing U.S. soldiers abusing Iraqi prisoners at Abu Ghraib were published the same day the court heard a challenge to the Bush administration’s detention of “enemy combatants” at Guantánamo Bay, Cuba. The court ultimately ruled against the administration, saying those deemed enemy combatants must be able to challenge their detention before a judge or other “neutral decision maker.”

“That’s not what you want the justices reading about the morning of your argument,” Jonathan Adler, a law professor at William and Mary, said of the government’s lawyers in that case. “You want to be right on the law, but it certainly helps to have atmospherics on your side.”

Those atmospherics could play a role as the justices decide how much flexibility Mr. Trump has to get rid of Ms. Cook before her term expires.

Jennifer Nou, a University of Chicago law professor, said the court ordinarily gave broad discretion to such executive branch judgments. But she pointed to a case during Mr. Trump’s first term that showed that the justices would sometimes reject what they viewed as a made-up rationale by the president or his top advisers.

In 2019, the court rejected the administration’s justification for adding a question about citizenship status to the census. The court said the commerce secretary had not been upfront when he told Congress he acted “solely” in response to a Justice Department request. Chief Justice John G. Roberts Jr. wrote that the explanation “appears to have been contrived” and that the secretary “was determined” to add the question.

The census decision “can be broadly understood to stand for the proposition that the court does not take pretext lightly,” Ms. Nou said, and “can’t be blinded to the real world.”

The revelations about the U.S. attorney’s investigation into whether Mr. Powell lied to Congress could bolster Ms. Cook’s argument, experts said.

Stephen I. Vladeck, a professor at Georgetown Law School, said the court might “have been inclined to swallow” the attempt to fire Ms. Cook “if it were a one-off.”

“But now that we have case No. 2, the notion that Lisa Cook was somehow an aberrational case goes by the board,” he said.

Kathryn Judge, a Columbia Law School professor who was a law clerk to Justice Stephen G. Breyer, agreed that the targeting of Mr. Powell bolstered the case that Mr. Trump’s reasons for firing Ms. Cook were “purely pretextual” and “an effort to coerce all members of the board into either resigning or following his preferred approach to policy.”

She said the justices were unlikely to formally factor Mr. Powell’s situation into their resolution of Ms. Cook’s case — but it would be an important backdrop for the case.

Ms. Cook’s lawyers, Professor Judge said, “don’t need to say anything for the justices to be aware of this.”

Colby Smith contributed reporting.

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