"New Federal Reserve News Agency": What does Powell's investigation mean for the case of Governor Cook?

On Wednesday, Nick Timiraos, a prominent financial journalist known as the "new Fed reporter," wrote that the U.S. Department of Justice's investigation into Federal Reserve Chairman Powell is not directly related in form to the Trump administration's attempt to dismiss Federal Reserve Governor Lisa Cook, nor was it directly mentioned at Cook's hearing on Wednesday. However, this investigation may in fact become the most favorable factor in defending Cook.

In Wednesday's court arguments, the justices were asked to rule on a very narrow issue: Whether the allegations of mortgage fraud constitute valid grounds for the removal of a Federal Reserve governor. However, given that the U.S. Department of Justice is conducting a criminal investigation into Powell's testimony last summer regarding the renovation of Fed offices, the case has been placed in a drastically different context.

Cook's lawyers have consistently argued that the accusations regarding her mortgage documents are just a pretext, intended to conveniently remove a Biden-appointed Fed governor without admitting the real reason is policy disagreement. They assert that the government's packaging of a political dismissal as a "valid removal" is because it knows the Supreme Court would likely not tolerate the U.S. president's naked assertion of control over the central bank.

Timiraos cited analysts who said that after Powell released a shocking video statement on January 11, this argument became easier to make. In that statement, Powell disclosed that the Department of Justice is conducting a criminal investigation into the Fed, and dismissed it as a pretext intended to force the Fed to lower interest rates as Trump had requested.

The Trump administration denies that the investigation has anything to do with Fed rate-setting. However, the kind of coercive pattern alleged by Cook’s lawyers now seems to have additional potential evidence, and this atmosphere also permeated the courtroom debate on Wednesday.

Timiraos quoted Boston University Law School professor Jed Shugerman as saying that Cook's lawyer Paul Clement "very cleverly did not make the Powell investigation the opening focus." But as his oral argument drew to a close, "he ensured, in a subtle yet effective way, that everyone present understood the broader context."

On Wednesday, Powell made the rare move of attending oral arguments at the U.S. Supreme Court regarding the case of Federal Reserve Governor Cook.

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