SCOTUS Weighs Fed Independence

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. President Donald Trump achieved reality TV fame by telling contestants on The Apprentice two infamous words. You're fired. And on Wednesday, those words were at the center of a Supreme Court case that could have big implications for the global economy and the independence of the U.S. Central Bank. Just a meeting across a conference table finished with you're fired. I mean. That was Supreme Court Justice Neil Gorsuch speaking, as the court heard arguments over one of Trump's latest attempted firings. President Trump says he's removing Fed Governor Lisa Cook effective immediately.

1:44He cites allegations that she committed mortgage fraud. Which she denies. No president has fired a sitting governor in the 112-year history of the Fed. Bloomberg reporter Amara Amokwe, who covers the Federal Reserve, was in the room. This was my first time at a Supreme Court hearing. I mean, it's not every day that a Fed-related matter comes before the Supreme Court. And, you know, when all the reporters walked into the room, we were all kind of just kind of stretching our necks to see who was in sort of the public part of the room. Former Fed Chair Ben Bernanke was there. So was current Chair Jerome Powell.

2:20It is pretty noteworthy that Jay Powell came to this argument. Greg Storr is a Supreme Court reporter for Bloomberg who's been following Cook's case. Up until very recently, Jay Powell has tried to remain studiously neutral in this case. The Fed itself has not been taking a position in this case. Wednesday's hearing came just over a week after federal prosecutors served grand jury subpoenas to the central bank over renovations at its headquarters and congressional testimony Powell gave about that project. The fact that he showed up, I think, did send a message about how important he sees it as being, especially after that rather extraordinary statement that he gave the other night about the criminal investigation involving him.

3:04No one, certainly not the chair of the Federal Reserve, is above the law. But this unprecedented action should be seen in the broader context of the administration's threats and ongoing pressure. That is a remarkable departure from the posture that Chair Powell and the Fed have taken towards all of the attacks that President Trump has directed at them since he returned to office last year. And so I think it raises the stakes in the Lisa Cook case, right, because if the justices signal that it is in a way easier to remove a Fed governor than has been thought of in the past, then it could be open season on any Fed governor.

3:49I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, Bloomberg reporters Amara Amokwe and Greg Storr take us inside the Supreme Court for Trump v. Cook. We take a look at the arguments from both sides and unpack what a ruling could mean for Fed independence, for the economy, and for Trump.

4:15President Trump tried to fire Lisa Cook eight months ago in a letter posted on Truth Social. Almost immediately, she sued the president, saying his effort to fire her could cause irreparable harm to the U.S. economy. A district court sided with Cook, saying she could remain on the job while she continues to challenge Trump's attempt. That decision then went to the appellate level, and the appeals court said the same thing, essentially, sided with Lisa Cook, that she could stay on the job while she fights to stay on the job permanently. And so then the administration went to the Supreme Court, and that is how we landed there today.

4:51But this isn't a typical Supreme Court case. It's on the court's emergency docket. It came about after the Trump administration filed an emergency application, asking the court to let them remove Cook immediately, even as a legal fight continues. And what's the fundamental question that the judges are being asked to consider here? What is this case really about? So you've basically got two things that Lisa Cook is arguing. One, she says, I can't be fired without some sort of process, more than just a social media post, which is how she was notified that Trump was trying to remove her. And so there's a question of, is she entitled to a chance to make her case before she's removed?

5:32And then the bigger question is, even if these allegations are true, and the allegations are that she engaged in mortgage fraud, she denies that vehemently, and her lawyer said at most it was inadvertent. Even if those are true, is that enough grounds for the president to fire her? So that's sort of the issues in the backdrop. And then because it is coming to the court in the context of an emergency application, not looking for a final ruling, the court is also thinking about what would be the consequences in the short term of, say, letting Trump fire her for the time being. And they're thinking about things like, what would the impact on the markets be?

6:10What would the impact on Fed independents be? So there are kind of non-legal factors that are at least in the air in this argument. Amira, how central were those broader questions going in to these oral arguments about not just the question of whether or not Trump has the power to fire or remove Lisa Cook, but the questions around presidential authority and the future of the Fed? As someone who covers the Fed, I mainly talk to Fed watchers and economists. I don't think that they're necessarily focused on sort of the nitty gritty legal details. Everyone is kind of thinking about the broader context, which is that the attempt to fire Lisa Cook comes amid the Trump administration's and the president's really effort to try to have more influence over the Fed and try to have more influence over monetary policy.

7:01The president has made clear that he wants to nominate a Fed chair to replace Jerome Powell when his term is up, a Fed chair who will cut interest rates drastically. He has pressured the Fed from several different sides. And so I think Fed watchers are looking at this and saying, if the president is able to remove Lisa Cook over an unproven mortgage fraud allegation, that would essentially erode this job protection that Fed governors enjoy in a way that would really then erode Fed independence and the ability of the Fed to set interest rates free of political pressure. With that backdrop, I want to walk through the actual arguments that the court heard this week.

7:43So let's start with Cook, the plaintiff in this case. Greg, what was at the center of her lawyer's argument to the court? We will hear argument this morning in case 25A312, Trump versus Cook. Well, there essentially are two prongs. The notion that she was not given any process, not given a chance to make her case that any problems with the mortgage applications were inadvertent. And secondly, that this allegation is not enough for the president to fire her. Coupled with that, the lawyer for Lisa Cook, Paul Clement, was also talking about the impact on Fed independence. It's less important that the president have full faith in every single governor.

8:31And it's more important that the markets and the public have faith in the independence of the Fed from the president and from Congress. You know, this is something the Supreme Court has suggested earlier. It cares about. And so trying to make the case that whatever you think about those legal questions at the end of the day, just be really careful about doing something in this case that would shatter that Fed independence. And Greg, what about the lawyers arguing in favor of President Trump? How did they counter that argument in front of the justices? So U.S. Solicitor General John Sauer, who's the top Supreme Court lawyer for the Trump administration, had multiple levels to his argument.

9:18One level was, hey, the Supreme Court has no business here. This is something the president has total authority over, total discretion. That didn't get him very far. Two, he said on that issue of process, he said, first, Lisa Cook doesn't have any property right in this job. She's not due any process because she's not entitled to this job. He also said that even if she is entitled to some process, she got plenty. She was told publicly that she was being fired and she has not responded, in his view, in any adequate way to those allegations. And that also met some resistance. Justice Barrett asking, you know, why would it be so hard to give her a hearing?

10:01One step you could take to reduce your irreparable harm, to show that there really was cause, is just to have a hearing. Why not? I don't think it's a question of resource allocation. It's our position that adequate process was already provided. And then finally, he made the argument that if these allegations are true, this is not somebody we want setting interest rates. It means that it's somebody untrustworthy. The American people should not have their interest rates determined by someone who was at best grossly negligent in obtaining favorable interest rates for herself. And that was sort of where the justices had the harder time because that's a kind of a judgment call that they seemed reluctant to get too deep into to try to figure out whether these allegations were the kind of things that were serious enough that the president ought to be allowed to fire her for cause.

10:56And whether they were material to how she does her job and whether she fulfills her responsibilities in the right way. Exactly. These are allegations about things that happened before she became a Fed governor. And there was a question of given that it's not something that was happening while she's doing the job, is it something that is of lesser importance? And Amara, how did the justices respond to these arguments? What were you seeing in the room about what they were paying attention to and asking about? Well, I thought one of the most notable moments was when Justice Kavanaugh questioned Sauer about Fed independence.

11:33And he basically started that line of questioning asking him, why is Fed independence important? And then he went on to basically talk about how, you know, a decision to remove Lisa Cook could essentially create a slippery slope where you have a cycle where presidents continuously kind of remove governors at will. Because if this were set as a precedent, it seems to me, just thinking big picture, what goes around comes around. All the current president's appointees would likely be removed for cause on January 20th, 2029. That was a point in the hearing where you saw people kind of perk up because it kind of got to the heart of the matter.

12:17The thing that we've all been thinking about, which is the question of Fed independence. I mean, to tie this all together, Greg, after hearing these arguments and the justices' responses, what's your sense of where the justices are leaning on this case as a body or individually? It sure seemed like, and not just a five justice majority, but a larger majority, was really concerned about the prospect of what it would mean if the court sided with Donald Trump and let him fire her at least right away. What seems like the big question now, is the court going to issue a narrow ruling that just kicks the can down the road a little bit?

12:56And maybe it comes back to them, a ruling maybe that says, hey, she's got to have some sort of opportunity to be heard before you fire her. Or do they do something broader that says allegations of these sort are not the kind of things that let a president remove a Fed governor? That would give much deeper protection for Fed governors going forward. That would be a very big deal. Whether the court is ready to go there yet, that's not clear.

13:25Up next, what prior rulings by the court could tell us about where the justices might land this time? And just how big the stakes are for Trump, for the Fed, and for the U.S. economy.

13:48This isn't the first time the Supreme Court has been asked to weigh in on President Trump's power to fire top officials at independent federal agencies. Last year, the court ruled in his favor, allowing him to oust officials at the National Labor Relations Board and the Merit Systems Protection Board. But notably, it exempted the Federal Reserve from that decision. It was an indication that the court was prioritizing Fed independence, an argument that Lisa Cook's lawyer, Paul Clement, invoked on Wednesday. There's a reason that monetary policy has been treated differently for, you know, low these many years.

14:26And there's a reason that the markets watch the Fed a little more closely than they watch really any other agency of government. So I asked Bloomberg Fed reporter Amara Amokwe to walk me through what it would mean if the court decided to rule in Trump's favor this time and allow the president to fire a Fed governor in this way. If you talk to any mainstream economist, when a central bank is independent, it provides for better economic outcomes. It reassures investors, it reassures the public that a central bank like the Fed is willing to take decisions that may be unpopular to produce the best economic outcomes, particularly when it comes to inflation, right?

15:07So a good example is in the wake of the pandemic, we had an inflationary surge in the United States, and the Fed raised interest rates aggressively to combat that. Painful for Americans, but necessary to push back against inflation. And the Fed was able to do that because it is an independent institution, and it doesn't have to worry about the political ramifications of taking unpopular steps. And so the idea is that if you have a less independent Fed, if you have a board of governors where people can be fired basically at will by the president, then perhaps they aren't going to be willing to take those unpopular steps when necessary.

15:45And then maybe you have an economy that is less strong. You have an economy where inflation is not well controlled. And that, in turn, erodes confidence that investors both here and abroad have in the U.S. economy and our assets. So it would have implications for the U.S. dollar, it would have implications for U.S. stocks, it would have implications for U.S. treasuries. And so economists warn of basically a downward spiral if we see Fed independence eroded. And Greg, let's play out the other possible scenario here. If the court rules against Trump, as perhaps seems more likely after these oral arguments, where does that put the president more broadly?

16:25How big of a loss is that? It's significant, but keep in mind, this is a Supreme Court that over the last year in particular has done a lot of things to expand presidential authority. And so in the non-Fed context, the court is still giving him very broad power to fire other people in the federal government when he wants to. But in terms of the Fed, it means that the Fed continues as we've known it for the most part. It means that even though they'll still be subject to political pressure, the bully pulpit, the president will be, you know, no doubt still talking about you should lower interest rates.

17:04He's going to have the ability to appoint a new chair and other members going forward. But in terms of where the Fed stands legally, it will be basically where it has always stood, which is once members are appointed and confirmed by the Senate, unless they do something really, really wrong, they are there throughout their term. And against this backdrop, Amara, the decision that we're waiting for seems quite high stakes. But I'm wondering, you know, you've described the Supreme Court as the Fed's last line of defense in the past. Are there other lines? Well, prior to us learning about the DOJ investigation, it really had been the Supreme Court with their initial sort of decision to allow Lisa Cook to remain on the job.

17:51That was kind of the first time we saw any of Washington's kind of institutions come to the Fed's defense, because really Republicans in Congress, since they control both chambers of Congress, have been very reticent to sort of push back on all the attacks from the Trump administration on the Fed. We haven't really seen much market reaction to some of these attacks. You know, last year over the spring and early summer, Trump was sort of talking about firing Chair Powell. We didn't see much of a market reaction. After he said he was firing Lisa Cook, we didn't see much of a market reaction. And so the idea that the markets act as a check on President Trump wasn't really applicable in the case of the Fed.

18:30We didn't really see much market reaction. But now with this DOJ investigation, we did see a few Republicans come out and say, you know, this is going a little too far. We kind of need to pull this back. And so I think this investigation is being seen as sort of a more serious threat, in part because it is a criminal investigation than some of the other sort of attacks that we've seen from the Trump administration. And Greg, I also want to understand what comes next. This is on the court's emergency docket. So what does that actually mean for when and whether we'll get a conclusive ruling on whether or not Lisa Cook can be removed from her post as Fed governor?

19:07The only thing I can say with a lot of confidence is that it will come out sometime before the term ends, which is typically end of June, very early July. And Amira, what's next for the Fed as they await this decision? There's a lot going on. So we have a Fed meeting next week where Fed officials are widely expected to hold interest rates steady after cutting three consecutive times at the end of last year. And so Fed officials are actually dealing with a pretty complicated economic picture on top of everything else because they are trying to figure out what's happening in the labor market and what's happening with inflation, which are kind of pulling their policy choices in kind of opposite directions.

19:48So there's a complicated economic backdrop that they're dealing with. The other big thing that's happening is that President Trump is weighing who he wants to pick for Fed chair. Chair Jerome Powell's term is up in May and President Trump is considering mainly four candidates. and that his whole selection process has been complicated by this DOJ investigation because you now have some Republicans who are pushing back against that and saying that they will not advance any of President Trump's Fed nominees until that situation is resolved. So there's a question of who Trump will pick to be Fed chair and how easily that person will be able to be confirmed.

20:32This is The Big Take from Bloomberg News. I'm Sarah Holder. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. Thanks for listening. We'll be back tomorrow.