A federal judge temporarily blocked President Donald Trump from firing Federal Reserve Governor Lisa Cook on Tuesday local time. It's an early setback for the White House in an unprecedented legal battle that threatens to upend the Fed's longstanding independence.The preliminary ruling by Judge Jaya Cobb of the U.S. District Court for the District of Columbia did not resolve the core issue, namely whether the Trump administration’s claim that Cook committed mortgage fraud before taking office was sufficient to warrant firing her. Cook has denied any wrongdoing.
Trump tried to fire Cook in late August, but the Fed said Cook was still performing the duties of his position.
The case, which is likely to end up before the U.S. Supreme Court, will affect the Fed's ability to set interest rate policy independent of the wishes of politicians - something widely seen as critical to any central bank's ability to control inflation.
Trump has been demanding an immediate and significant interest rate cut from the U.S. central bank and has blamed Federal Reserve Chairman Jerome Powell for his leadership on monetary policy. Markets expect the Fed to announce a rate cut at its policy meeting on September 16-17.
The White House had no immediate comment on the matter. Trump also did not respond to reporters' questions about the ruling.
The law establishing the Federal Reserve stipulates that Fed governors can be fired only for "just cause," but the term "just cause" is not defined and no dismissal procedures are established. No president has ever fired a Fed governor before, and the legal provision has never been tested in court.
"The best interpretation of the 'good cause' clause is that the basis for dismissal of a member of the Federal Reserve Board of Governors is limited to the conduct of a member of the Federal Reserve Board of Governors and whether he or she faithfully and effectively performed his statutory duties," Cobb wrote in the ruling. "Accordingly, 'good cause' should not include the dismissal of an individual solely because of his or her conduct prior to taking office."
Trump and William Pulte, his appointee to head the Federal Housing Finance Agency, said Cook misrepresented the property on three different mortgage applications, which may have allowed her to obtain lower interest rates and tax credits.
The U.S. Department of Justice has also launched a criminal mortgage fraud investigation into Cook and issued grand jury subpoenas in Georgia and Michigan, according to documents seen by The Associated Press and a person familiar with the matter.
Last week, Cook filed a lawsuit against Trump and the Fed, arguing that the accusations did not give Trump the legal authority to fire her and that the charges were a pretext for firing her over her stance on monetary policy.
Cook, the first black woman to serve as a Fed governor, denied the fraud charges in court documents, saying she "never committed mortgage fraud."
But she said that even if the allegations were true, they would not be grounds for firing her because the alleged conduct occurred before she was confirmed to take office by the U.S. Senate in 2022.
The Trump administration has argued that the president has broad discretion in deciding whether to fire Fed governors and that courts have no authority to review those decisions.