Written by: Bao Yilong, Wall Street Journal
President Trump is attempting to dismiss Federal Reserve Board member Lisa Cook, which is raising a significant legal controversy regarding the White House's control over the Federal Reserve.
On August 26, Wall Street Journal reported that Trump made a high-profile announcement on social media, stating that the dismissal of Federal Reserve Board member Cook was 'immediate' and accused her of committing fraud in the mortgage application process. Cook's defense attorney, Abbe Lowell, has pledged to file a lawsuit regarding this.
President Trump claims he has 'just cause' to fire me, but legally there is no such reason, and he does not have the authority to do so. I will not resign. I will continue to fulfill my duties to help the U.S. economy, just as I have been doing since 2022.
Cook was appointed by President Biden in 2022, with a term originally set to last until 2038. Bill Pulte, director of the Federal Housing Finance Agency, accused Cook of misconduct in the application process for two mortgage loans in 2021, which may constitute mortgage fraud.
However, these accusations remain allegations for now. Cook has not faced a formal investigation or criminal charges, nor has she been convicted. The alleged misconduct occurred a year before Cook's appointment as a board member and is unrelated to her duties as a Federal Reserve Board member. Legal experts believe that unproven allegations are unlikely to meet the standard for 'cause for dismissal'.
According to Section 10 of the Federal Reserve Act of 1913, members of the Federal Reserve Board can only be removed 'for just cause', but the law does not explicitly define what constitutes 'just cause'. Generally, 'just cause' typically includes three situations: inefficiency, negligence, and misconduct during the term.
The outcome of the dispute between Trump and Cook will largely depend on the court's interpretation of the legal standard of 'just cause'.
Legal Proceedings: Preliminary Injunction Becomes Key
If Cook files a lawsuit, she can immediately request a preliminary injunction to prevent her dismissal during the course of the litigation.
Both parties will submit briefs outlining their respective arguments, and the Trump administration will have the opportunity to provide more details regarding the accusations against Cook.
The outcome of the injunction ruling may depend on whether Cook can persuade the judge that failing to maintain the status quo would cause her and the Federal Reserve 'irreparable harm'.
A decision on the preliminary injunction may be made soon, which is crucial because the judge's ruling on whether the case actually constitutes 'just cause' for dismissal may take months or longer.
The case may not be prolonged for too long. Both parties can appeal the injunction ruling to the federal appellate court. If Cook's request for an injunction is denied and the appeal upholds the original ruling, her dismissal will remain in effect. If the injunction is granted and supported by the appellate court, Cook may continue in her position while the case progresses.
The Supreme Court may become the final arbiter
This dispute may ultimately be resolved by the U.S. Supreme Court.
Any ruling regarding the preliminary injunction can be appealed to the federal appellate court and ultimately reach the Supreme Court.
Given that Trump has a 6 to 3 conservative majority in this court and that the court has repeatedly upheld his legally challenged policies this year, this may put him in a favorable position in the lawsuit.
However, the Supreme Court gave an important hint in a ruling in May of this year. At that time, the court allowed Trump to remove officials from two other government agencies without providing a reason but specifically noted that this decision did not imply that the president has similar powers over the Federal Reserve, stating that the Federal Reserve is 'a uniquely structured private entity'.
This statement is interpreted as saying that Trump cannot dismiss Federal Reserve officials without cause, but it leaves open the possibility of dismissing Cook for 'just cause'. It was reported that in U.S. legal practice, 'just cause' is generally interpreted to cover three situations: inefficiency, negligence, and misconduct during the term.
However, there has yet to be a unified consensus on these terms that gained prominence in the U.S. Congress over a century ago. The judges will have to determine whether the mortgage fraud allegations against Cook constitute any of these.
If this case ultimately reaches the Supreme Court, it will be a direct test of this gray area.
'Mortgage fraud' allegations and their background
Bill Pulte, director of the Federal Housing Finance Agency, is a staunch ally of Trump, and he accused Cook of lying in the loan applications for the two properties on social media.
Previously, Wall Street Journal mentioned that Cook designated properties in Michigan and Georgia as her primary residences to secure better loan terms. He stated that the applications for the two properties were submitted two weeks apart.
Trump stated in the letter that it is 'incredulous' that Cook did not realize that the two separate mortgage applications submitted in the same year required her to designate each property as her primary residence.
At the very least, the actions involved demonstrate serious negligence in financial transactions, raising doubts about your experience and credibility as a financial regulator.
According to media reports, the Trump administration had also made similar accusations against other critics, including California Senator Adam Schiff and New York Attorney General Letitia James, both of whom denied the charges.
