Court: Lisa Cook Can Stay at Fed for Now

A federal court ruled Tuesday that embattled Federal Reserve Governor Lisa Cook can remain in her position while she fights President Trump's efforts to fire her. The ruling, which the AP reports will almost certainly be appealed, is a blow to the Trump administration's efforts to assert more control over the traditionally independent Fed. Trump said he was firing Cook on Aug. 25 over allegations that she committed mortgage fraud. Cook's lawyers argued that firing her was unlawful because presidents can only fire Fed governors "for cause," which has typically meant inefficiency, neglect of duty, or malfeasance while in office. They also said she was entitled to a hearing and a chance to respond to the charges before being fired, but was not provided either. Her lawsuit denied the charges.

The case could become a turning point for the 112-year-old Federal Reserve. Economists prefer independent central banks because they can do unpopular things like lifting interest rates to combat inflation more easily than elected officials. Many economists worry that if the Fed falls under the control of the White House, it will keep its key interest rate lower than justified by economic fundamentals to satisfy Trump's demands for cheaper borrowing. That could accelerate inflation and could also push up longer-term interest rates, such as those on mortgages and car loans. Investors may demand a higher yield to own bonds to offset greater inflation in the future, lifting borrowing costs for the US government, and the entire economy.

If Trump can replace Cook, he may be able to gain a 4-3 majority on the Fed's governing board. No president has sought to fire a Fed governor before. The Supreme Court has signaled that the president can't fire Fed officials over policy differences, but can do so "for cause," typically meaning misconduct or neglect of duty. Cook has not been charged with any crime. Trump has repeatedly attacked Fed Chair Jerome Powell and the other Fed members for not cutting the short-term interest rate more quickly. It currently stands at 4.3%, after Fed policymakers reduced it by a full percentage point late last year. Trump has said he thinks it should be as low as 1.3%, a level that no Fed official and few economists support.