Trump Cannot Remove Fed Governor Lisa Cook for Now, Appeals Court Rules

A panel of federal judges on Monday held that President Donald Trump cannot fire Federal Reserve Governor Lisa Cook as of now, one day before the Fed’s two-day meeting on whether to lower interest rates.

The late-night order by the Court of Appeals for the District of Columbia Circuit struck down Trump’s emergency bid to set aside a preliminary ruling by a lower court, which barred Trump from removing Cook for alleged mortgage fraud pending the outcome of litigation between Trump and Cook.

The appeals court’s opinion came a day before a two-day rate-setting hearing, known as a Federal Open Market Committee (FOMC) meeting, during which the Fed will consider whether to cut federal interest rates. Without a last-minute intervention by the Supreme Court, the Fed’s interest rate-setting committee will meet Sept. 16–17 with all seven governors and the 12 regional bank presidents, with a rate decision expected on Wednesday afternoon.

The appeals court hinged its decision on the Fifth Amendment’s Due Process Clause, which guarantees the rights of citizens against government removal of their property interests without the due process of law.

The government “failed to provide Cook even minimal process—that is, notice of the allegation against her and a meaningful opportunity to respond—before she was purportedly removed,” Circuit Judge Bradley Garcia wrote in the court’s Monday opinion. Circuit Judge J. Michelle Childs voted in agreement with Garcia.

Because Cook has a property interest in her position, and the government had not provided her with advanced notice and an opportunity for a hearing before removing her, Trump cannot fire her pending the outcome of this lawsuit, the court decided.

Monday’s order means that Cook can remain in her role pending the outcome of her lawsuit against Trump that challenges his decision to fire her. A lower court ruled last week that Cook’s case had a “reasonable likelihood of success,” a rationale it used to issue an injunction against Trump’s order.

The third judge, Gregory Katsas, said in a dissenting statement that he would have granted the president’s request, because the Federal Reserve Act of 1913 gives Trump ample authority to remove Cook, Katsas wrote in his dissent.

“The President plainly invoked a cause relating to Cook’s conduct, ability, fitness, or competence,” Judge Katsas wrote in his dissent. “The allegations against Cook could constitute mortgage fraud if she acted knowingly, and that is a felony offense.”

“And the President specifically concluded that the allegations cast doubt on Cook’s ‘competence and trustworthiness as a financial regulator,’” he added.

As to the Court’s due process concerns, Katsas opined that because Cook is a public servant, she serves “in a position of public ‘trust’” and, commonsensically, “does not have a ‘private property’ right to wield ‘governmental powers’ in our democratic system of government.”

Monday’s court order sets back Trump’s plan to shape the makeup of the Federal Reserve’s leadership, an objective that he had announced on Aug. 26, one day after his move to fire Cook.

Alleged Mortgage Fraud

The publicized controversy began when the director of the Federal Housing Finance Agency (FHFA), William Pulte, posted Aug. 20 on X that a criminal referral letter accusing Cook of committing mortgage fraud in June and July 2021, before she was nominated and confirmed to the Board of Governors.

Trump, in a Truth Social post half an hour later, wrote, “Cook must resign, now!!!” and shared a link to an article regarding the allegations. Five days later, Trump posted a letter, dated Aug. 25 and addressed to Cook, stating that she is “removed from [her] position on the Board of Governors of the Federal Reserve, effective immediately.”

Her alleged misconduct “exhibits the sort of gross negligence in financial transactions that calls into question [her] competence and trustworthiness as a financial regulator,” the president wrote.

Three days later, Cook filed the current lawsuit at the district court in the District of Columbia, which gave rise to this lawsuit. District Court judge Jia M. Cobb then filed a preliminary injunction against Trump’s removal of Cook, barring Trump from removing Cook pending the result of the litigation. On Sept. 11, Trump asked the Court of Appeals for the D.C. Circuit to set aside this injunction, a request now denied by the Court of Appeals.

‘For Cause’

One of two issues in the case concerns the extent of the president’s ability to remove a Federal Reserve official “for cause,” a term in the Federal Reserve Act that qualifies the president’s authority to remove the official.

The answer to that legal question is significant because it could determine Trump’s ability to shape the makeup of federal agency leadership in a way more aligned with his policy agenda.

Because Trump based his rationale for removing her on alleged misconduct that occurred before Cook’s confirmation—instead of behavior during her term—his decision to fire Cook is not grounded in “good cause” and runs afoul of Congress’s intent when they passed the law, the lower court wrote in its opinion last week.

But the government’s lawyers say that’s not an issue, because the statute provides the president discretion to remove Cook, and that his decision to do so is not subject to review by the courts.

“The bottom line is that the statute provides for the President to remove a Governor ‘for cause,’” the government’s lawyer wrote in a Sept. 4 reply brief to Cook’s complaint. “The President exercised that authority after public revelations of Dr. Cook’s mortgage misconduct; and there is no basis in the statute, the Constitution, or principles of equity for a district court to second-guess that determination, let alone to order reinstatement.”

Not letting the president remove Cook “would insulate all manner of gross wrongdoing” and preclude the president from “removing a Governor who was revealed to have committed massive financial fraud—so long as it happened before confirmation,” the government’s lawyer wrote in another brief filed on Aug. 29.

The lower court disagreed, citing two cases—one recent and one dating back to the 19th century—that establish the authority of the court to review decisions by other parts of the government.

“Even when a statute ‘delegates discretionary authority’ to an actor, the ‘role of the reviewing court … is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits,’” the court wrote.

“It is emphatically the province and duty of the judicial department to say what the law is,” the court added.

The commonsensical reason that the president can’t remove Federal Reserve officials for arbitrary reasons has to do with the design and the purpose of the agency itself, the lower court wrote.

“Sound monetary policy often involves making short-term sacrifices for the long-term good of the economy,” the court wrote in its decision on Tuesday. “Congress therefore designed the Federal Reserve and the Board of Governors to possess characteristics that reflect their insulation from other parts of the federal government, in particular with respect to the Board’s monetary policy decisions,” the court wrote.

“Board members are appointed to staggered 14-year terms, which, notwithstanding unexpected vacancies, typically prevents any single administration from appointing a majority of the Board’s members and further shields the Board from partisan influences.”

In other words, because the Federal Reserve must make unpopular decisions, insulating the Federal Reserve from political influences is crucial for it to make sound monetary policy.

By doing so, “Congress sought to ensure that the Federal Reserve would ‘reflect, not the opinion of a majority of special interests,’ but a body that takes into consideration all phases of national economic life,” the court wrote in its opinion last week.