Since the start of the year, investors had been eagerly awaiting the Supreme Court's decision on Donald Trump's reciprocal tariffs. But so far, the justices have not issued their verdict. The Supreme Court's schedule now means it will be necessary to wait until at least February 20.
Attention has therefore shifted to the Lisa Cook case, on which the Supreme Court is set to rule. The judgment will be handed down today, and it will be decisive for the future of the Fed and its independence.
Valid grounds?
This Fed governor, appointed by Joe Biden in 2022, was removed from her post by Donald Trump last August over allegations of fraud involving mortgage loans.
The Trump administration accuses her of taking out loans for properties declared as primary residences but later rented out. Mortgage rates for a primary residence are generally lower than those for rental properties and often provide tax advantages to the borrower.
However, the decision was blocked by a federal judge in early September, enabling Lisa Cook to keep her job. The Trump administration immediately appealed, and it is now up to the Supreme Court to decide.
Under the Federal Reserve Act, the president can dismiss a Fed governor only for "cause". In the trial court ruling, Judge Cobb did not consider that the allegations against Lisa Cook justified her dismissal. First, because the alleged conduct is unrelated to the performance of her duties, and second, because it concerns a period prior to her appointment to the Fed.
Time to set limits
As no president has attempted to remove a Fed governor in more than a century of the institution's existence, there is no case law on the matter, and therefore no precise definition of "for cause".
While legal experts are expecting a decision in Lisa Cook's favor, the Supreme Court is likely to spell out why Trump's attempted removal falls short, thereby clarifying what constitutes "cause" for dismissing a governor. If the justices set strict criteria, they will strengthen the Fed's independence. But they could also leave the door open to future attacks by the Trump administration, by imposing looser limits and, in a way, providing a how-to guide.
Since the start of his second term, Donald Trump has sought to expand executive power. The strategy is fairly clear: take decisions he knows will be challenged in court, push the case up to the Supreme Court, and ultimately obtain a favorable ruling from the conservative majority - six justices out of nine were appointed by Republican presidents, including three by Donald Trump - thereby enshrining an expansion of his prerogatives. The Lisa Cook case fits into that strategy.
For years, the Supreme Court has undermined the independence of agencies. And the rulings handed down over the past year, allowing Donald Trump to fire agency leaders, have further reinforced that dynamic.
However, the Supreme Court has so far seemed to grant the Fed a special status. In May, the justices issued an opinion on the removal of officials at independent agencies, in which they indicated that "the Federal Reserve is a quasi-private entity with unique status".
In his drive to expand executive power, Donald Trump wants to bring the Fed to heel. But so far, his aggressiveness has tended to backfire. Fed governors unanimously reappointed all regional Fed presidents in December. And observers now expect Jerome Powell to remain on the Fed's board at the end of his term as chair in May. It is therefore not impossible that the battle launched by Donald Trump ultimately strengthens the Fed's independence.
