By Daniel Wiessner
(Reuters) -A federal judge on Friday will consider whether to block President Donald Trump temporarily from firing Federal Reserve Governor Lisa Cook while she pursues a lawsuit claiming Trump has no valid reason to remove her.
The hearing scheduled for 10 a.m. EDT (1400 GMT) before U.S. District Judge Jia Cobb in Washington, D.C., is the first step in what will likely be a protracted legal battle that could upend the U.S. central bank’s historical independence and is likely to be resolved by the U.S. Supreme Court.
Cook sued Trump and the Fed on Thursday, saying the Republican president’s unsubstantiated claim she engaged in mortgage fraud before taking office did not give him legal authority to remove her, and was a pretext to fire her for refusing to lower interest rates.
Concerns about the Fed’s independence from the White House in setting monetary policy could have a ripple effect throughout the global economy. The U.S. dollar stumbled against other major currencies after Trump said he would remove Cook.
The law that created the Fed says governors may be removed only “for cause,” but does not define the term nor establish procedures for removal. No president has ever removed a Fed governor, and the law has never been tested in court.
Cook’s emergency motion to block her removal pending further litigation is taken up by Cobb, an appointee of Democratic President Joe Biden.
To rule for Cook, Cobb would have to find that her lawsuit is likely to succeed, that Cook faces irreparable harm if she is removed and that such a ruling is in the public interest.
Cook in court filings denied committing mortgage fraud but said that even if she had, it would not be grounds for removal because the alleged conduct occurred before she was confirmed by the U.S. Senate and took office in 2022.
Trump claims that a year earlier, Cook described separate properties in Michigan and Georgia as primary residences on mortgage applications, which could have allowed her to obtain lower interest rates.
SUFFICIENT CAUSE
Trump administration lawyers will likely argue at Friday’s hearing that alleged mortgage fraud is sufficient cause to remove a Fed governor, regardless of when it happened.
Trump and William Pulte, the director of the Federal Housing Finance Agency who first raised questions about Cook’s mortgages earlier in August, have said the alleged conduct calls her integrity into question.
The administration could also argue that giving Fed governors protections from removal violates the president’s broad constitutional powers to control the executive branch, as it has in lawsuits filed by other ex-officials that Trump has fired.
Cook counters that federal laws limiting the president’s ability to remove officials from other agencies define cause as negligence, malfeasance or inefficiency that occurs when an official is in office, and the same standard should apply to the Fed.
“There is no conceivable interpretation of ‘for cause’ removal protection that would allow the President to fire Governor Cook, either for his true motive or the pretextual one he has invented,” she said in the motion seeking a temporary restraining order.
Such orders cannot generally be appealed, but if Cobb sides with Cook she would likely issue a longer-term preliminary injunction that could be reviewed by an appeals court.
The case will likely reach the U.S. Supreme Court, where a conservative majority has tentatively allowed Trump to fire officials from other agencies despite laws shielding them from removal.
But the court in a May order distinguished the Fed from those agencies, citing its unique structure and “distinct historical tradition.”
Cook’s departure would allow Trump to name his fourth pick to the Fed’s seven-member board.
The president has repeatedly berated Fed Chair Jerome Powell for not lowering rates and allegedly mishandling a multibillion-dollar renovation project, though he has stopped threatening to remove Powell before his term as central bank chief ends in May.
(Reporting by Daniel Wiessner in Albany, New York, Editing by Alexia Garamfalvi and Cynthia Osterman)
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