Supreme Court signals Fed independence is a priority in Fed Governor Lisa Cook lawsuit

The Supreme Court appears ready to shield the Federal Reserve from presidential interference after justices from across the ideological spectrum questioned President Donald Trump's attempt to remove Fed Governor Lisa Cook in a case closely watched by financial markets.

After a two-hour emergency hearing on Jan. 21, the high court appeared likely to allow Cook to remain on the Fed board in a move that would restrict President Donald Trump's power over the central bank.

Both liberal and conservative justices seemed skeptical about the president's bid to fire Cook for cause over allegations that she lied about her primary residence on mortgage paperwork.

Cook denies the allegations, and she has never been charged or convicted.

She says Trump's aim is to exert more control over monetary policy and lower interest rates.

Cook issued a statement following the hearing saying that her case is about whether "the Federal Reserve will set key interest rates guided by evidence and independent judgment or will succumb to political pressure."

Douliery/AFP via Getty Images

Solicitor general cites "deceit" and "negligence" by Cook

U.S Solicitor General D. John Sauer asked the court to allow President Trump to terminate Cook while her lawsuit to retain her job moves forward.

He argued that the president has broad discretion to remove Fed members with little supervision from courts.

The justices, including key members of the conservative majority, pushed back with sharp questioning.

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The administration's position, Justice Brett Kavanaugh said, could "shatter" the Fed's history of independence.

Justice Amy Coney Barrett asked whether the risk to financial markets was reason for "caution on our part," but she also suggested she wasn't ready to fully embrace Cook's position.

Cook denies mortgage fraud allegations

Cook, one of the seven members of the Fed board, is the first black woman to serve as a Federal Reserve governor. A Biden appointee, her 14-year term runs to 2032.

Trump ally William Pulte, the director of the Federal Housing Finance Agency, released bombshell allegations against Cook in August 2025.

• Pulte accused Cook of falsifying records to get a more favorable mortgage rate before she was appointed to the Fed by President Joe Biden.
• President Trump responded by firing Cook "for cause," the only way a sitting Fed governor may be removed.
• Cook denied the allegations and filed suit to retain her seat.
• The case made its way up the federal court systems, with two federal judges ruling in Cook's favor.
• The Department of Justice appealed to the Supreme Court, which agreed to the unusual emergency hearing.

Cook's attorney invokes potential impact on markets

Cook's attorney Paul Clement repeatedly described the Fed as a "uniquely structured, quasi-private entity" in describing the unique nature of the case.

"Here, I think it's less important that the president have full faith in every single governor, and it's more important that the markets and the public have faith in the independence of the Fed from the president and from Congress," Clement said.

Justices refer to the Federal Reserve's unique history

The court's conservative majority has repeatedly allowed Trump to fire leaders of other independent agencies.

But the justices have signaled that the Fed may be exempt from executive influence because of its structure and history.

"There's a reason the markets watch the Fed more closely than other agencies," Kavanaugh said, adding that it was important that "markets don't think rates are being lowered" for political reasons.

Related: Federal Reserve independence at stake in Lisa Cook Supreme Court case

Both Kavanaugh and Barrett noted that former Fed chairs and Treasury secretaries have warned against allowing the president to immediately fire Cook.

Barrett cited comments that warned of a risk of a recession should the president be allowed to fire Cook.

The Supreme Court's next steps

A ruling is expected later this year in which the justices must decide the following.

• How much discretion a president has to fire Fed officials
• How cause is to be defined
• The type of notice and due process officials should have before a president can remove them

Jerome Powell pushes back against DOJ criminal probe

Cook's hearing came just days after Fed Chair Jerome Powell announced the Department of Justice had served him subpoenas over the cost of renovations to the Fed's Washington headquarters.

Powell said the threat of an unprecedented criminal investigation, which stunned Fed watchers and legal analysts, was a "pretext" related to Trump's year-long demands for drastically lower interest rates.

The Powell subpoenas undermine "the administration's contention that this is all about Lisa Cook's conduct and not about her votes on monetary policy," Lev Menand, a Columbia University law professor, told The New York Times.

Powell was present during the Supreme Court hearing, as was Cook.

Related: Jamie Dimon Warns of Global Crisis Over Fed Probe

TheStreet

This story was originally published January 21, 2026 at 1:20 PM.