Federal Reserve inquiry clouds Trump’s Supreme Court bid to oust Lisa Cook

WASHINGTON - The Supreme Court's review this week of President Donald Trump's attempt to fire a member of the Federal Reserve was always going to pose a key test of how much leeway the justices would give the president to remake and control the central bank.

Then the Justice Department issued subpoenas this month as part of a criminal investigation into the Fed chair, Jerome Powell.

Legal experts said that development threatened to complicate the Trump administration's case, making a potentially difficult-to-win case even more challenging.

Trump's solicitor general will argue to the court Wednesday that the president had a valid reason to fire Lisa Cook, who has been a Fed governor since 2022, because she allegedly engaged in mortgage fraud. She sued after Trump tried to oust her in August, arguing that the law that established the Fed allowed presidents to dismiss members only "for cause."

Cook, who has not been charged with wrongdoing, denies the allegations, which relate to loan documents she signed before joining the Fed.

Analysts say the Powell subpoenas could bolster the sense that the Trump administration ginned up a pretext to oust Cook as a way to force the central bank to lower borrowing costs.

The move against Powell "undermines the administration's contention that this is all about Lisa Cook's conduct and not about her votes on monetary policy," said Lev Menand, a Columbia University law professor who is closely tracking the case.

"It all tends to suggest that the goal here is to take over the Fed," he said.

Powell will attend Wednesday's arguments, along with Cook, according to a person familiar with the matter.

Central bank governors serve staggered 14-year terms "unless sooner removed for cause by the president," according to federal law. Congress put those protections in place in 1913 and renewed them in 1935 to ensure the independence of the institution and allow officials to set monetary policy without political interference from the president.

The Justice Department is investigating whether Powell misled Congress when questioned in June about extensive renovations of the Fed's headquarters in Washington that are running hundreds of millions of dollars over budget.

Powell has aggressively pushed back, saying the investigation is a "consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president."

That is the same argument Cook's lawyers will make during Wednesday's argument. In filings, they have said the mortgage fraud allegation is "paper-thin, unproven" and a "manufactured" pretext for policy disagreements.

Trump had repeatedly vented his frustration with the Fed's approach to monetary policy and Powell, whom Trump promoted to chair during his first term. Powell, a registered Republican, was initially tapped to join the Fed as a governor by President Barack Obama.

Despite his complaints about Powell, the president moved to fire Cook, a nominee of President Joe Biden, citing the allegations that she falsified bank documents to acquire more favorable loan terms.

Former top Fed and Treasury officials and Cook's legal team have warned the Supreme Court that permitting Trump to fire her while her litigation is underway would spur economic turmoil and undermine public confidence in the central bank.