Filings warn of market chaos if Fed Gov. Cook is removed

Chana R. Schoenberger

• Key insight: Federal Reserve Governor Lisa Cook asked the Supreme Court to deny President Donald Trump's request to overturn a preliminary injunction previously issued by a district court. In her filing, Cook called the Court's intervention "premature."
  
•  Expert Quote: "A stay from this Court would signal to the financial markets that the Federal Reserve no longer enjoys its traditional independence, risking chaos and disruption," Fed Gov. Cook's Sept. 25 filing said.
  
• What's at stake: The outcome of whether, and to what extent, the Supreme Court decides to hear the case could have far-reaching implications for the Federal Reserve's independence from political pressure going forward.

More than half a dozen filings were submitted Thursday in response to President Donald Trump's request for the Supreme Court to strike down an injunction allowing Federal Reserve Governor Lisa Cook to remain on the board while courts decide whether efforts to remove her are legal.

The court asked Cook's attorneys to reply to the Justice Department's petition for certiorari by Thursday. Another six amicus briefs were also filed to the court, including briefs from economists, scholars, former government officials and the state of Florida. Most of the filings argued that removing Cook from the board could erode public confidence in the independence of the central bank and shake financial markets.

Cook's filing called Trump's request for Supreme Court intervention "premature," noting the litigation "has barely begun" and warned that a stay from the high court would cause disarray in financial markets.

"To start, the president's request for this Court's intervention is premature: This litigation has barely begun, and further factfinding could avoid the need for this Court to decide the high-stakes legal issues raised in the president's application," Cook's attorneys wrote. "On the merits, this Court is likely to reject each of the president's legal theories. Specifically, the Court is likely to hold that because Governor Cook is removable only for cause, she is entitled to notice, opportunity for a hearing, and judicial review before she is removed."

Her 51-page filing said the emergency application "fares even worse on the equitable factors" because the preliminary injunction issued by the district court, allowing Cook to remain on the board while her suit against Trump plays out, preserves the "longstanding equitable tradition of preserving the status quo."

"Granting the president's request for immediate relief to alter the status quo would sound the death knell for the central bank independence that has helped make the United States' economy the strongest in the world," Cook's attorneys said. 

A group of 18 former federal officials — including former Federal Reserve chairs Janet Yellen, Alan Greenspan and Ben Bernanke, as well as former Treasury secretaries and other prominent officials — urged the court to deny the request for a stay, warning of "unwarranted harm to the economy during the pendency of Governor Cook's legal proceedings.

"Allowing the government to remove a member of the Board of Governors for the first time in the nation's history, while under the cloud of legal challenge, will erode public confidence in the Fed's independence and threaten the long-term stability of our economy," the brief said.

Another amicus brief, filed by professors of law, economics and finance, echoed similar concerns, highlighting that granting the application would cause serious harm to monetary stability and damage the reputation of Fed officials.

"Any ruling that markets could construe as abrogating the independence of the Federal Reserve System, even if temporarily or with respect to only some of its functions, could set the stage for significant market turmoil and undermine the credibility of Federal Reserve officials in ways that might not be easily reversed," the filing said.

Not every amicus brief supported Cook's position. A filing by the state of Florida called the government's dispute over whether Cook is entitled to reinstatement "meritorious" and "cert-worthy" — that is, a matter that the court should take up.

Lawyers representing Florida argued that the district court lacked the authority to grant the preliminary injunction allowing Cook to remain on the board.

"Federal courts cannot use their equitable powers to remedy unlawful removals absent an act of Congress," the Florida attorneys wrote in their amicus brief. 

On Sept. 18, Trump's legal team petitioned the nation's highest court to overturn lower court rulings that blocked the president's effort to fire Cook from taking effect.

John Sauer, the U.S. solicitor general, asked the Supreme Court in mid-September to freeze the lower court's injunction, arguing that the decision represents "improper judicial interference with the president's removal authority."

"Put simply, the president may reasonably determine that interest rates paid by the American people should not be set by a governor who appears to have lied about facts material to the interest rates she secured for herself — and refuses to explain the apparent misrepresentations," Sauer wrote in the filing.

Litigation was originally filed by Cook following the president's attempt to remove her via a social media post due to allegations that she claimed primary residence on two mortgage applications in 2021, before she served on the Fed Board of Governors. Cook has not been charged with a crime.

Her suit argues that the Federal Reserve Act only allows the president to remove a Federal Reserve Board governor "for cause," and that the allegations presented by Trump do not meet that standard.