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It comes down to the meaning of two words: “for cause.” Hanging in the balance: the President’s ability to control how the Federal Reserve conducts monetary policy.
The Federal Reserve Act states that the President can fire a Fed board member “for cause.” Exactly what that means has been vague, in no small part because no President has ever removed a Fed governor.
Clarifying what that means, or doesn’t, is at the core of the case before the Supreme Court. Hanging in the balance: more than a century of law and precedent, along with the degree of freedom from government (political) influence over how it sets monetary policy.
The backstory: President Trump has been pushing the Fed to lower interest rates since he returned to office a year ago. As one example, in a social media post earlier this month, he wrote:
“Jerome ‘Too Late’ Powell should cut interest rates, MEANINGFULLY!!!”
At issue in the case that is scheduled to go before the High Court today is the President’s attempt to fire Federal Reserve Governor Lisa Cook, arguably as part of an effort to remake the Fed and install new governors that will be amenable to lowering interest rates to a degree that satisfies Trump.
Whatever the motivation, in August, Trump wrote on his social media account: “you are hereby removed” from the role of Fed governor, in a reference to Cook. The announcement marked the first time since the Fed was created in 1913 that a Fed governor had been fired, or in this case, an attempt to remove Cook.
US District Judge Jia Cobb in September ruled that Cook, who refused to resign, could remain at the Fed while she defended herself against allegations that she committed mortgage fraud – charges made by Federal Housing Finance Agency Director Bill Pulte, a Trump appointee.
The Supreme Court will hear arguments related to Trump’s petition to reverse a lower court judge’s ruling that prevents him from firing Cook while her case moves through the legal system. to the removal continues.
A related development, although it’s not formally part of the Cook case, is the Trump administration’s launch this month of criminal investigation into Fed Chair Powell regarding testimony in Congress last year about a Fed building project.
Powell responded by issuing a video statement, framing the Department of Justice investigation as decision as an attack on the central bank’s ability “to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation.”
“The Court has to tell us what a firable offense looks like for members of the Federal Reserve Board,” says Lev Menand, an economics law scholar at Columbia Law School and former Treasury Department official. “But it can’t be just whatever the president says it is.”
Ultimately, “This is a case that’s about much more than Cook,” Menand continues. “It’s about whether President Trump will be able to take over the Federal Reserve Board in the coming months, and the administration has been pretty clear about that.”
Betting markets are currently pricing in low odds that Cook will be removed as Governor. Kalshi’s estimate this morning of ousting is 29% by the end of this month, falling to 6% through March. Polymarket is reporting similarly low odds of removal.
Meanwhile, the business of the Fed goes on, including monetary policy. The Fed funds futures market is currently estimating a high probability that the central bank will leave its target rate unchanged at next week’s policy meeting (Jan.28).
If correct, the news may further anger Trump. The larger question is how or if the Supreme Court decision reshuffles monetary policy expectations and decisions, and, in turn, how or if that spills over into the pricing of Treasury yields?
Whatever the outcome of the court case, it appears that politics, law, and monetary policy are melding. At risk is the Fed’s autonomy, and by extension, the integrity of the financial system, real or perceived. In short, the case before the Supreme Court is much more than a decision about whether Lisa Cook can keep her job.