By John Kruzel
WASHINGTON, Jan 17 (Reuters) - The U.S. Supreme Court signaled four months into Donald Trump's second presidential term last year its interest in shielding the Federal Reserve from political interference. When the justices on Wednesday consider the legality of his bid to fire Fed Governor Lisa Cook, their willingness to preserve the U.S. central bank's independence will be put to the test.
With control over U.S. monetary policy at stake, the legal battle over Trump's attempt to remove
Cook marks the second case involving an action by the Republican president of vast economic significance to reach the Supreme Court during its current term, which began in October.
The court, which has a 6-3 conservative majority, heard arguments in November concerning Trump's sweeping global tariffs, with justices indicating skepticism over the lawfulness of these import taxes on nearly every U.S. trading partner imposed under a law meant for use in national emergencies. Its rulings in the tariffs and Cook cases are expected by the end of June but could come sooner.
The court has been largely deferential to Trump in a series of rulings on an emergency basis since his return to office 12 months ago as he repeatedly tests the limits of presidential authority. The justices, however, may be less eager to strengthen Trump's hand over the economy.
"I think they worry about the effect that removal of central bank independence could have on the economy," said John Yoo, who served as a Justice Department lawyer under Republican former President George W. Bush.
"It seems a basic principle of macroeconomics, backed up by the experience of other countries, that political control over the money supply, interest rates and central banking will inevitably lead to inflation," said Yoo, now a University of California, Berkeley law professor.
According to legal scholars, the court has not been so directly involved in U.S. economic policy since the justices weighed the constitutionality of Democratic President Franklin Roosevelt's muscular agenda called the New Deal during the 1930s amid the crisis of the Great Depression.
'NOT UNBOUNDED'
Columbia Law School professor Kathryn Judge said the fights involving Fed independence and Trump's tariffs "will be key in determining the scope of the president's authority to unilaterally determine economic policy."
"This Supreme Court has taken a very expansive approach to executive authority," Judge said, "but it is not unbounded."
Cook, an appointee of Democratic former President Joe Biden and the first Black woman to serve as a Fed governor, sued Trump in August after he sought to fire her, an unprecedented step by a president against a central bank official. Trump claims that Cook committed mortgage fraud before being appointed to the Fed by his Democratic predecessor Joe Biden in 2022, an allegation she denied and described as a pretext to try to remove her for her monetary policy stance.
Similarly, Fed Chair Jerome Powell on Sunday called a criminal investigation of him launched by Trump's Justice Department a pretext to gain more influence over the central bank and monetary policy. The investigation centers on Powell's congressional testimony about a Fed building project.
Critics see the steps by Trump and his administration targeting Cook and Powell as a bid to pressure the Fed to lower interest rates before the November midterm elections in which Democrats are hoping to regain control of Congress from the Republicans. Pocketbook concerns may loom large for voters.
"With each passing day - and with each passing attack by the Trump administration - I suspect that the court increasingly sees the value of an independent Fed," University of Illinois Chicago law professor Steve Schwinn said.
Yoo added that "Trump is not helping his own case with the Department of Justice's implausible criminal investigation" of Powell.
REMOVAL PROTECTIONS
Cook has said Trump's allegations of mortgage fraud did not empower him to remove her under the Federal Reserve Act, the law that created the central bank in 1913. Aiming to insulate the Fed's decision-making from politics, Congress included provisions constraining a president's ability to fire a Fed governor, allowing removal only for adequate "cause," not policy differences.
A Washington-based federal judge ruled that Trump's claims were likely insufficient grounds to fire Cook. A federal appeals court in Washington denied Trump's request to halt the judge's ruling, prompting his request to the Supreme Court.
Legal analysts said the justices have offered recent clues signaling their interest in protecting the Fed's independence. For instance, they allowed Cook to remain in her post as the case plays out after allowing Trump to remove officials from other agencies with similar tenure protections while those cases proceed.
Last May, the court let Trump fire two Democratic members of federal labor boards while challenges to their removals continue in lower courts. In that ruling, called Trump v. Wilcox, the court sought to allay concerns that letting the president fire officials from federal labor boards would imperil the independence of the Fed.
"We disagree," the court wrote in an unsigned opinion. "The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States."
The court has backed Trump on an emergency basis on matters including immigration, mass federal layoffs, cutting foreign aid, dismantling the Education Department, banning transgender people from the military and other areas. But those disputes did not stand to enhance Trump's unilateral control over economic policy.
Erwin Chemerinsky, dean of the University of California, Berkeley Law School, said the court's interest in protecting Fed independence likely will be very important as it weighs Cook's case.
"In Trump v. Wilcox, the court discussed the Fed being different even though it had nothing to do with that case," Chemerinsky added.
(Reporting by John Kruzel; Editing by Will Dunham)
