Today, the Supreme Court debates the "Cook case," and the ruling will affect Trump's control over the Federal Reserve

According to Bloomberg's report on Monday, the U.S. Supreme Court is debating the case regarding Trump's dismissal of officials from the Federal Trade Commission today, and this hearing will provide key insights into the fate of Federal Reserve Governor Lisa Cook. These two cases will test whether the "special protection clause" established by the Supreme Court for the Federal Reserve last May can continue to be effective, a clause designed to prevent the president from arbitrarily firing Federal Reserve officials.

For the Federal Reserve, this case concerns the independence, a core pillar of economic management. Federal law stipulates that governors can only be removed for "just cause," ensuring that monetary policymakers do not have to worry about being dismissed due to presidential dissatisfaction. Trump has repeatedly criticized the Federal Reserve for its slow pace of interest rate cuts this year and has hinted at the intention to dismiss Chairman Powell. If the Supreme Court rules in favor of Trump, it could fundamentally undermine the independence of the central bank.

The impact of this case is not limited to the Federal Reserve. The conservative majority of the court is considering overturning a 1935 precedent that allows Congress to establish independent agencies and protects their leaders from presidential control. This ruling will also affect Trump's attempts to dismiss officials from various government agencies related to labor relations, consumer product safety, transportation safety, and employment discrimination.

The Federal Open Market Committee will hold a two-day meeting starting tomorrow, potentially announcing a new round of interest rate cuts. The Supreme Court's debate will determine whether the Federal Reserve can maintain its policy independence at a critical moment for monetary policy decision-making.

Court's Attitude May Reverse "Federal Reserve Exception"

Whether the Supreme Court will reinforce its previously suggested stance of "the Federal Reserve can retain position protection" has become the core issue of this case.

On May 22 last year, the Supreme Court ruled that Trump could temporarily dismiss officials from two other agencies, reasoning that these agencies seemed to execute functions belonging to the president. However, in a brief footnote, the court stated that the Federal Reserve might not necessarily be affected by this ruling, calling it a "structurally unique quasi-private entity," distinct from other independent agencies.

However, this distinction is difficult for both sides to justify. The Federal Reserve also regulates banks—this responsibility falls under the traditionally defined executive functions. "They create and enforce regulations, impose fines," said Jacob Huebert, a lawyer for the New Civil Liberties Alliance, "these are all executive branch tasks and should be controlled by the executive branch."

The court's liberal justices also do not agree with this distinction, but their proposed solution is to uphold the position protections established by Congress for other agencies and the Federal Reserve. Justice Elena Kagan, in her dissenting opinion in May, sarcastically referred to this exception as the "tailored Federal Reserve exception," aimed at avoiding market disruption. She wrote on behalf of three justices appointed by Democrats that the Federal Reserve's independence "is based on the same constitutional and analytical foundations as other agencies."

Federal Trade Commission official Rebecca Kelly Slaughter expressed the same concerns in an interview: "There is no exception in the Constitution that says 'unless it involves finance.' From a substantive perspective, this also does not make sense, as the work of the Federal Trade Commission also significantly impacts financial markets."

Trump's Dual-Line Attack Strategy

The Trump administration is attempting to circumvent the issue of the Federal Reserve's status in legal documents. Deputy Attorney General D. John Sauer stated that judges do not need to resolve the Federal Reserve's status in the Federal Trade Commission case, but added that the government "has not acknowledged the constitutionality of the Federal Reserve Board's removal protection clause."

Even if the court retains the Federal Reserve's "good cause" clause, the Cook case may still provide another avenue for Trump to control the central bank. The government accuses Cook of fraudulently listing properties in Michigan and Georgia as her "primary residence" to obtain more favorable terms when securing a mortgage in 2021.

Sauer argued: "Cook's significant, obvious, and unexplained false statements on financial documents create a serious appearance of misconduct, undermining public confidence in her authority as a financial regulator."

Cook and her lawyers claim the accusations are baseless, accusing the government of taking statements out of context and failing to prove fraudulent intent. Cook also stated that even if the accusations were true, they do not meet the "good cause" requirement, partly because these actions occurred before she took office as a Federal Reserve Board member and were private actions.

She argued that supporting Trump's decision "would destroy the long-standing independence of the Federal Reserve, disrupt financial markets, and lay the groundwork for future presidents to directly guide monetary policy formulation based on political agendas and election schedules."

Reshaping the Power Struggle at the Federal Reserve

Trump is seeking greater influence over the Federal Reserve. This year, he has appointed ally Stephen Miran to fill a vacancy on the board, who advocates for rapid interest rate cuts. If successful in removing Cook—whose term does not expire until 2038—Trump will gain another opportunity to reshape the Federal Reserve Board.

Trump plans to announce his choice to succeed Powell early next year, as Powell's term as chairman will expire in May. The president has made it clear that he will choose a successor who supports interest rate cuts.

A secondary issue in the Federal Trade Commission case may also affect Cook. The government argues that federal judges lack the constitutional authority to prevent the removal of executive officials. If the court accepts this argument, it could jeopardize Cook's efforts to retain her position.

The connection between the two cases almost ensures that judges will consider both Cook and the Federal Reserve's situation when weighing the Slaughter and Federal Trade Commission cases. Scott Alvarez, who served as the Federal Reserve's General Counsel for 13 years, stated: "I suspect they will first hear the Slaughter case, but will not make a ruling before hearing the Cook case, and then will rule on both cases together. Why would they use the Federal Reserve exception to answer the Slaughter case before hearing arguments about the Federal Reserve exception?"

Cook is one of several targets of the Trump administration's investigation into mortgage fraud allegations submitted to the Department of Justice, most of whom are Democrats