Supreme Court takes up politically charged case with independence of the Federal Reserve at stake

By MARK SHERMAN

WASHINGTON (AP) — President Donald Trump’s unprecedented bid to reshape the Federal Reserve board is putting the Supreme Court in a familiar position, weighing an emergency appeal from the president’s lawyers in a politically charged case.

The court is hearing arguments Wednesday over Trump’s effort to oust Federal Reserve governor Lisa Cook based on allegations she committed mortgage fraud, which she denies.

No president has fired a sitting Fed governor in the agency’s 112-year history.

The true motivation, Trump’s critics say, is the Republican president’s desire to wrest control of U.S. interest rate policy. Trump wants interest rates to fall sharply so the government can borrow more cheaply and Americans can pay lower borrowing costs for new homes, cars or other large purchases, as worries about high costs have soured some voters on his economic management.

Fed Chair Jerome Powell and the board cut a key interest rate three times in a row in the last four months of 2025, but that’s more slowly than Trump wants. The Fed also suggested it may leave rates unchanged in coming months, concerned about triggering higher inflation.

Powell is expected to be in attendance when the justices take up an emergency plea from the Trump administration to be allowed to remove Cook from her job while her challenge to the firing plays out in court. Judges on lower courts have allowed her to remain in her post as one of seven central bank governors.

If Trump could name someone to take Cook’s place, he would have four of his appointees on the seven-member board. Cook, the first Black woman to serve on the Fed’s governing board, was appointed in 2022 by President Joe Biden, a Democrat.

The justices are being asked to effectively bless Trump’s effort to undermine the Fed’s independence, said Columbia University law professor Lev Menand, who has joined a brief in support of Cook.

“This case is about much more than Cook,” Menand said. “It’s about whether President Trump will be able to take over the Federal Reserve board in the coming months.”

The threat to the Fed’s independence spurred Powell’s three living predecessors, Alan Greenspan, Ben Bernanke and Janet Yellen, to weigh in on Cook’s behalf. They were joined by five former Treasury secretaries appointed by presidents of both political parties and other former high-ranking economic officials.

In their filing, lawyers for the former officials wrote that immediately ousting Cook “would expose the Federal Reserve to political influences, thereby eroding public confidence in the Fed’s independence and jeopardizing the credibility and efficacy of U.S. monetary policy.”

Economists warn that a politicized Fed that caves in to the president’s demands will damage its credibility as an inflation fighter and likely lead investors to demand higher rates before investing in U.S. treasuries.

With Cook’s case under review at the high court, Trump dramatically escalated his confrontation with the Fed. The Justice Department has opened a criminal investigation of Powell and has served the central bank with subpoenas.

Powell himself took the rare step of responding to Trump, calling the threat of criminal charges “pretexts” that mask the real reason, Trump’s frustration over interest rates. The Justice Department has said the dispute is ostensibly about Powell’s testimony to Congress in June over the cost of a massive renovation of Fed buildings.

In Trump’s first year in office, the justices generally, but not always, went along with Trump’s pleas for emergency action to counteract lower-court rulings against him, including allowing the firings of the heads of other governmental agencies at the president’s discretion, with no claim that they did anything wrong.

But the court has sent signals that it is approaching the independence of the nation’s central bank more cautiously, calling the Fed “a uniquely structured, quasi-private entity.”

In Cook’s case, Trump is not asserting that he can fire Fed governors at will.

Cook is one of several people, along with Democratic New York Attorney General Letitia James and Democratic Sen. Adam Schiff of California, who have been accused of mortgage fraud by federal housing official Bill Pulte. They have denied the allegations against them.

The case against Cook stems from allegations she claimed two properties, in Michigan and Georgia, as “primary residences” in June and July 2021, before she joined the Fed board. Such claims can lead to a lower mortgage rate and smaller down payment than if one of them was declared as a rental property or second home.

Cook has denied any wrongdoing and has not been charged with a crime. “There is no fraud, no intent to deceive, nothing whatsoever criminal or remotely a basis to allege mortgage fraud,” a Cook lawyer, Abbe Lowell, wrote to Attorney General Pam Bondi in November.

Cook specified that her Atlanta condo would be a “vacation home,” according to a loan estimate she obtained in May 2021. In a form seeking a security clearance, she described it as a “2nd home.” Lowell wrote that the case against her largely rests on “one stray reference” in a 2021 mortgage document that was “plainly innocuous in light of the several other truthful and more specific disclosures” about the homes she has purchased.

U.S. District Judge Jia Cobb ruled that the Trump administration had not satisfied a legal requirement that Fed governors can only be fired “for cause,” which she said was limited to misconduct while in office.

Cobb also held that Trump’s firing would have deprived Cook of her due process, or legal right, to contest the firing.

By a 2-1 vote, a panel of the federal appeals court in Washington rejected the Trump administration’s request to let Cook’s firing proceed.

At the Supreme Court, the administration argues Cook has no right to a hearing and courts have no role to play in reviewing Trump’s actions.

Trump lawfully fired Cook, Solicitor General D. John Sauer wrote, “after concluding that the American people should not have their interest rates determined by someone who made misrepresentations material to her mortgage rates that appear to have been grossly negligent at best and fraudulent at worst.”

Sauer will face off against Paul Clement, a conservative lawyer who served in Sauer’s role under President George W. Bush and has argued for expanding gun rights, against same-sex marriage and for striking down the Affordable Care Act. Both men once worked as law clerks for Justice Antonin Scalia.

Cook’s fate should not be determined by “untested allegations” or “before any facts are found,” her lawyers told the court. She should be able to remain in her job at least while her case proceeds, they wrote.

AP Economics Writer Christopher Rugaber contributed to this report.

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