Will the Supreme Court continue to protect the Federal Reserve from Donald Trump?

By John Fritze, CNN

(CNN) — In the end, the Supreme Court’s blockbuster case on whether President Donald Trump may temporarily fire members of the Federal Reserve may come down to a single, 26-word sentence.

After repeatedly allowing Trump to remove leaders of other independent agencies, the conservative court seemed to draw a line around the central bank in a much-debated paragraph last spring, writing that the Fed — with its enormous sway over the economy — is shielded from political manipulation because it is “uniquely structured” with a “distinct historical tradition.”

The scope of that unusual exception will be put to the test Wednesday when the court hears oral arguments in the case of Lisa Cook, a Fed governor Trump attempted to fire over the summer following allegations that she had committed mortgage fraud by reporting two different homes as her primary residence. (Cook has denied any wrongdoing.)

It is among the most important cases the court has heard on presidential power and the economy in years.

“What the court has in front of it is the question of how much this carveout really is a barrier to presidential control of the Fed,” said Lev Menand, a law professor at Columbia University who published a book on the central bank in 2022. “This case is about a lot more than Lisa Cook. We’re going to find out what’s the relationship between the central bank and the president.”

If Trump ultimately is successful in dismissing Cook, it would mark the first time a president has fired a Fed governor in the central bank’s 111-year history.

The Trump administration, meanwhile, raised the stakes further this month by opening a criminal investigation into Federal Reserve Chair Jerome Powell. That fight isn’t before the Supreme Court, but it is likely to sit in the back of the justices’ minds.

Cook has warned that a decision for Trump would “eviscerate the independence” of the Fed and trigger “chaos and disruption” for US markets.

Because of that, she and her attorneys have relied heavily on those 26 words the court wrote about the Fed last year.

Trump is unlikely “to persuade the court to adopt his arguments,” Cook told the justices in a brief last year. “Especially after this court went out of its way to single out the Federal Reserve’s unique status and distinct history.”

Still on the job

For its part, the administration has focused on more technical points, asserting that Cook was entitled to no more review of the allegations than she received before Trump tried to remove her.

“That the Federal Reserve Board plays a uniquely important role in the American economy only heightens the government’s and the public’s interest in ensuring that an ethically compromised member does not continue wielding its vast powers,” the Department of Justice told the Supreme Court last fall.

Trump fired Cook in August after a member of his administration alleged she had committed mortgage fraud by reporting two different homes as her primary residence — a practice that can yield better loan terms. Other documents subsequently revealed that Cook sometimes declared the second property as a “vacation home.” Cook has called the charges “manufactured” and has noted that no court has yet reviewed them.

Federal law gives the president the power to remove members of the Fed “for cause,” so one underlying question for the Supreme Court will be whether the allegations met the standard for that cause. Because firings at independent agencies are rare, the answer is not entirely clear.

Following his return to the White House a year ago, Trump moved quickly to consolidate power within the executive branch. In that time, the Supreme Court has allowed the president to temporarily remove board members at the Federal Trade Commission, the Consumer Product Safety Commission, the National Labor Relations Board and the Merit Systems Protection Board.

But those lawsuits all involved a slightly different legal issue from the current Fed case. In those other disputes, Trump attempted to boot board members without a reason — despite federal laws requiring him to demonstrate malfeasance or neglect.

For Cook, the Justice Department says the mortgage fraud allegations qualify as reason enough.

A federal court in September temporarily blocked Cook’s removal, finding that Trump had not identified anything relating to her conduct in her job to indicate she was harming the public. A federal appeals court in Washington, DC, declined to put that order on hold. Trump quickly filed the emergency appeal at the Supreme Court.

Rather than deciding the appeal on its emergency docket, the Supreme Court agreed to hear oral arguments.

And in a potentially worrying sign for the administration, it allowed Cook to remain on the job while the case continues.

‘Logically incoherent’

Lawyers for fired leaders at other independent agencies for months sounded a warning they hoped would give the Supreme Court pause.

If the justices were to allow the president to fire board members of the Merit Systems Protection Board, for instance, then logically they’d also be green-lighting him to fire Fed governors. The approach was a smart one to take with a Supreme Court that has generally tried to avoid handing down decisions that sharply disrupt the US economy.

But in an unsigned opinion in May, the court batted away the strategy.

“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,” the court wrote.

The assertion drew a bemused response from Justice Elena Kagan, who described it as “out of the blue” in a dissent joined by the court’s other two liberals.

Kagan wrote that she was “glad to hear” the court’s conservative majority wanted to avoid “imperiling the Fed.” But, she added, the result was baffling given that it seemed to be ungrounded.

“Today’s order,” Kagan wrote, “poses a puzzle.”

“For the Federal Reserve’s independence rests on the same constitutional and analytic foundations” as the other agency’s the court had allowed Trump to whack.

Menand said the court’s logic of treating the Fed differently from other independent agencies didn’t make sense.

“It’s logically incoherent and doctrinally unworkable,” he said. “The legal commentariat have ambitions that the court can flesh this out into something that makes sense, but I’m highly skeptical.”

Others say the Fed’s history lends itself to different treatment. When Congress created the first and second banks of the United States, it separated day-to-day control of the money supply from the president, according to a brief supporting Cook from a group of finance and legal experts. The initial governance of the Federal Reserve, those experts said, “dispersed authority.”

All of that, they said, was an effort to keep the president’s hands off the people making monetary policy.

Trump has long been sharply critical of the Fed for, in his view, keeping interest rates high. Critics say the administration’s real goal in targeting Cook — and now Powell — has been to pressure the agency to lower rates. The Federal Reserve did cut its benchmark interest rate in September, October and December — citing economic indicators, not presidential pressure.

Cook voted in favor of those cuts.

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