How even a conservative Supreme Court pushed back on Trump in Lisa Cook case

Cook, who first became a member of the System in May 2022 to complete an unexpired term and was later in September 2023 reappointed for a full 15-year term, has been accused by Trump of fraud – according to the President, Cook applied for two different home loans prior to becoming a part of the Fed and in both those applications mentioned the respective house to be her primary residence. This, as per Trump, is enough ‘cause’ to fire Cook — the one legal way through which the President can remove Fed governors.

Cook has denied Trump’s claims and sued him.

The special nature of the US Fed

The Supreme Court’s decision to let Cook continue in her job — which means she will sit in on the next two meetings later this month in October and in December to decide on interest rates — is a pushback against the Trump administration’s rapid stripping down of the US’ independent institutions and federal agencies, including the rather notable firing of Erika McEntarfer, who served as the Commissioner of the Bureau of Labor Statistics until August. And this comes from a Court which has been rather supportive of the Trump administration.

Many Americans are of the opinion that the Supreme Court leans far too much to the right. According to a new poll by global analytics and advisory firm Gallup, 43 per cent of Americans think the current Supreme Court is “too conservative” – the highest the proportion has ever been, albeit by a marginal one percentage point.

But the Federal Reserve is unlike any other institution, and even the Supreme Court has said so.

Back in May, even as the Supreme Court blocked two federal court orders that stopped the Trump administration from firing Gwynne Wilcox from the National Labor Relations Board and Cathy Harris from the Merit Systems Protection Board, it made note of the special nature of the Fed. Wilcox and Harris argued that if the Supreme Court sided with Trump, then even Fed members were fair game for the administration.

But the court said it disagreed: “The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States”. That unique nature has seemingly come to Lisa Cook’s rescue.

Erosion of independence

The cloud over Cook – and indeed, Fed Chair Jerome Powell, whose term as the head of the central bank ends in May 2026 – has been rather dark. Trump has repeatedly called for sharp cuts in interest rates even in the face of rising prices. In fact, over the last several months, the President has repeatedly said the US has “no inflation”. But consumer prices were 0.4 per cent higher month-on-month in August and 2.9 per cent year-on-year; India had lower retail inflation in August than the US.

Trump last month named ally Stephen Miran to the Fed’s Board of Governors to fill what was left of former Governor Adriana Kugler’s term that is set to end in January – although he could stay on if a successor is not in place.

Miran – who is only on unpaid leave from his position as the chair of Trumps’ Council of Economic Advisers and remains a White House staffer – voted for a 50-basis-point (bps) interest rate cut last month. All other 11 members of the Federal Open Market Committee – the Fed panel which votes on interest rates – voted for a 25 bps reduction. But more than just the quantum of Miran’s rate cut, it is his reasoning that has experts worried.

“Like his views on international finance, Miran’s views on monetary policy put too much stock in his own subjective assessment of economic conditions and too little in established economic theory and practice,” Jay Kedia, Research Fellow at the Cato Institute’s Center for Monetary and Financial Alternatives, wrote last week. “The result is that he interprets data to fit his narrative (that the Federal Funds Rate is too high), rather than the other way around. For instance, in a recent CNBC interview, Miran denied that inflation was a major concern, stating that a high degree of net migration out of the US would be disinflationary.”

The battle over the Fed’s independence is very real; so real that former Fed chairs and treasury secretaries such as Janet Yellen, Ben Bernanke, Alan Greenspan, Larry Summers, Timothy Geithner, Jacob Lew, and Henry Paulson wrote to the Supreme Court last week that allowing Trump to sack Cook while her legal challenge to the decision is pending “would threaten that independence and erode public confidence in the Fed”.