US judge blocks Trump from removing Fed Governor Cook, for now

A federal judge on Tuesday (Sep 9) temporarily blocked United States President Donald Trump from removing Federal Reserve Governor Lisa Cook, an early setback for the White House in an unprecedented legal battle that could upend the US central bank's long-held independence.

The preliminary ruling by US District Judge Jia Cobb in Washington, DC, does not settle the key issue of whether the Trump administration's claims that Cook committed mortgage fraud before taking office, which she denies, are sufficient cause for her removal. Trump moved to fire Cook in late August, but the Fed has said she remains in her position.

The case, which will likely end up before the US Supreme Court, has ramifications for the Fed's ability to set interest rate policy without regard to politicians' wishes, widely seen as critical to any central bank's ability to keep inflation under control.

Trump has demanded that the US central bank cut rates immediately and aggressively, berating Fed Chair Jerome Powell for his stewardship of monetary policy. The central bank is expected to deliver a rate cut at its Sep16 to Sep 17 policy meeting.

The White House had no immediate comment. Trump did not respond to a reporter's question about the ruling.

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.

"The best reading of the 'for cause' provision is that the bases for removal of a member of the Board of Governors are limited to grounds concerning a Governor’s behaviour in office and whether they have been faithfully and effectively executing their statutory duties," Cobb wrote in her ruling. 

"'For cause' thus does not contemplate removing an individual purely for conduct that occurred before they began in office."

Trump and William Pulte, the Federal Housing and Finance Authority director appointed by Trump, say that Cook inaccurately described three separate properties on mortgage applications, which could have allowed her to obtain lower interest rates and tax credits.

The US Justice Department also has launched a criminal mortgage fraud probe into Cook and has issued grand jury subpoenas out of both Georgia and Michigan, according to documents seen by Reuters and a source familiar with the matter.

Cook sued Trump and the Fed last week, saying the claims did not give Trump the legal authority to remove her and were a pretext to fire her for her monetary policy stance.

Cook, the first Black woman to serve as a Fed governor, has denied the fraud claims in court filings, saying that she "did not ever commit mortgage fraud".

But she has said that even if the allegations were true, it would not be grounds for removal because the alleged conduct occurred before she was confirmed by the US Senate and took office in 2022.

The Trump administration has argued that the president has broad discretion to determine when it is necessary to remove a Fed governor, and that courts lack the power to review those decisions.