The US Supreme Court today began hearing arguments on former President Trump's authority to remove federal officials, with the outcome potentially determining the fate of Federal Reserve Governor Lisa Cook. The cases will test whether the Court's May 2023 "special protection clause" for the Fed remains valid—a provision designed to prevent presidential interference with central bank officials.

For the Fed, the case strikes at the heart of its independence—a cornerstone of economic governance. Federal law stipulates that governors may only be removed for "cause," shielding monetary policymakers from presidential dismissal over policy disagreements. Trump has repeatedly criticized the Fed this year for being too slow to cut rates and hinted at firing Chair Jerome Powell. A ruling favoring Trump could fundamentally undermine central bank autonomy.

The implications extend beyond the Fed. The Court's conservative majority is considering overturning a 1935 precedent that permits Congress to create independent agencies with leadership protected from presidential removal. The decision would also affect Trump's attempts to remove officials across multiple agencies overseeing labor relations, consumer safety, transportation, and employment discrimination.

The hearing comes as the Fed's policy-setting committee begins a two-day meeting tomorrow, potentially announcing fresh rate cuts. The Supreme Court's decision will determine whether the central bank can maintain its policy independence at this critical juncture.

Court May Reverse "Fed Exception" Position

A key question is whether the Court will reinforce its prior suggestion that the Fed could retain job protections. In its May 22, 2023 ruling allowing Trump to temporarily remove officials from two other agencies, the Court described the Fed as a "structurally unique quasi-private entity" distinct from other independent agencies in a brief footnote.

This distinction has drawn skepticism from both sides. The Fed regulates banks—a traditionally executive function. "They make and enforce rules, impose penalties," said New Civil Liberties Alliance attorney Jacob Huebert. "These are executive functions that should be under executive control."

Liberal justices also rejected this distinction but argued for preserving job protections Congress created for all independent agencies, including the Fed. Justice Elena Kagan mocked the carve-out as a "bespoke Fed exception" designed to avoid market disruption in her May dissent, writing that the Fed's independence "rests on the same constitutional and analytical foundation as other agencies."

FTC Commissioner Rebecca Kelly Slaughter echoed this view: "The Constitution doesn't say 'unless it's about finance.' It makes no substantive sense because the FTC's work also significantly impacts financial markets."

Trump Administration's Two-Pronged Strategy

The Trump administration's legal filings attempt to sidestep the Fed's status question. Deputy Solicitor General D. John Sauer argued judges needn't resolve the Fed's position in the FTC case but added the administration "does not concede the constitutionality" of the Fed's removal protections.

Even if the Court preserves the Fed's "for cause" standard, the Cook case could provide Trump another path to influence the central bank. The administration alleges Cook fraudulently listed Michigan and Georgia properties as "primary residences" to secure favorable mortgage terms in 2021.

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

Cook and her attorneys call the allegations baseless, accusing the government of taking statements out of context and failing to prove fraudulent intent. Cook argues that even if true, the actions wouldn't meet the "for cause" standard as they occurred before her Fed appointment and involved private conduct.

She warns a Trump-favorable ruling "would destroy the Fed's longstanding independence, disrupt financial markets, and create a blueprint for future presidents to directly steer monetary policy based on political agendas and election calendars."

Power Struggle Reshapes Fed

Trump seeks greater Fed influence, having already appointed ally Stephen Miran—a proponent of faster rate cuts—to a board vacancy. Removing Cook—whose term runs until 2038—would give Trump another opportunity to reshape the Fed's leadership.

Trump plans to announce a Powell successor early next year when the chair's term expires in May, having vowed to pick a rate-cut supporter. A secondary issue in the FTC case could also affect Cook—the administration's argument that federal judges lack constitutional authority to block executive branch removals. If accepted, this could doom Cook's retention efforts.

The cases' interconnection likely means justices will consider both Cook and the Fed's situation when ruling on Slaughter and the FTC. Former Fed General Counsel Scott Alvarez speculated: "They'll hear Slaughter first but won't decide until after Cook's arguments, then rule on both together. Why answer Slaughter using the Fed exception before hearing arguments about it?"

Cook is among several Democrats targeted by the Trump administration for Justice Department investigations over mortgage fraud allegations.