The U.S. Department of Justice told the Supreme Court: The market will not be intimidated by Trump firing Cook.
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In a document submitted to the Supreme Court on Friday, the U.S. Department of Justice argued that President Trump’s dismissal of Federal Reserve Governor Lisa Cook for alleged misconduct would not trigger a “financial market catastrophe.”
D. John Sauer, an advisor to the Attorney General, urged the U.S. Supreme Court to allow Trump’s decision to remove Cook to take effect while Cook’s lawsuit against the president is still ongoing.
Sauer stated that Trump “suffers irreparable harm” due to the lower court’s order temporarily reinstating Cook. Recognizing that the president has the authority to dismiss a Federal Reserve Governor for clear financial misconduct does not undermine the Fed's policy independence. Dismissing Cook on this basis would also not trigger a financial market disaster.
In late August, Trump announced his dismissal of Fed Governor Cook, citing allegations of mortgage fraud raised by Bill Pulte, Director of the Federal Housing Finance Agency. Cook was accused of declaring two properties as her primary residence on mortgage documents before being appointed as a Fed Governor in 2022. Cook denied committing mortgage fraud.
Cook’s legal team argued in a document submitted to the Supreme Court on Thursday that Trump’s request for a “stay order” to enable her removal is essentially asking the justices to “destroy the independence of the Federal Reserve Board in an emergency manner.”
Under the 1913 Federal Reserve Act, the U.S. president does have the authority to remove a Fed Governor, but only “for cause.”
Cook’s lawyers argued that the “fabricated charges” raised by Trump do not meet this standard, as they are “based on conduct prior to her appointment to the Board.”
They also pointed out: “If the Supreme Court approves the stay order, it will send a signal to financial markets that the Fed no longer enjoys its traditional independence, thereby bringing the risk of chaos and volatility.”
Sauer responded in Friday’s Supreme Court filing: “It’s unclear why the market would panic over removal for pre-appointment misconduct but not for in-office misconduct; nor is it clear why the market would feel reassured by the prospect that as long as the statute of limitations has passed, someone newly discovered to have committed fraud can remain on the Fed Board.”
On the same day, Nick Timiraos, a well-known financial journalist known as the “New Fedwire,” cited comments earlier this week by Bank of Canada Governor Tiff Macklem:
The market may already be beginning to worry about the Fed’s independence. Historically, in turbulent times, investors have typically regarded dollar assets as a “safe haven.” But Macklem told reporters in Saskatchewan that, now, the value of the dollar as a hedging tool “may no longer be as reliable as it used to be.”
Macklem said: “I’m not saying all of this is related to President Trump’s threats against the Fed. But I do think you are beginning to see some impact. In that sense, now is the time to have a discussion about this issue.”
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