By Howard Schneider and Ann Saphir
WASHINGTON (Reuters) -The U.S. central bank opens a two-day policy meeting on Tuesday having skirted, for now, a first-ever effort by the U.S. President to remove a sitting Fed governor, but still facing unprecedented pressure from the White House to bring monetary policy more under the direct influence of the executive branch.
In a 2-1 ruling, a federal appeals court in Washington on Monday said Governor Lisa Cook could remain in her job while litigation over President
Donald Trump's effort to fire her proceeds, a decision that absent a last-minute intervention by the Supreme Court means she will participate fully at the Fed's policy meeting this week.
The central bank is expected to cut its benchmark interest rate by a quarter of a percentage point to the 4.00%-4.25% range, a move in the direction Trump has demanded though short of the deep rate cuts the White House wants.
Alongside Cook, the Fed will likely have a new voice around the policy table after the U.S. Senate on Monday confirmed Stephen Miran, currently on leave as the head of the White House's Council of Economic Advisers, to an open seat on the central bank's seven-member Board of Governors. Following his 48-47 confirmation Miran is expected to be sworn in for the meeting.
While a rate cut this week would mark the first such move by the U.S. central bank since December, financial markets' focus may be more fixed on the implications of the ongoing Cook saga for the Fed as an institution and for the direction of monetary policy.
The fact that courts have so far sided with Cook, avoiding the potentially disruptive ouster of an independent policymaker by a sitting president, has limited any market fallout from Trump's unprecedented decision to say he had "cause" to fire Cook because of allegations she misrepresented information on a mortgage application.
Cook denies any wrongdoing and has not been charged with any offense. The Fed has said it would follow any court ruling on Cook's status.
A divided three-judge panel ruled that Cook is likely to succeed on her argument that in being fired in a Trump social media post she did not receive constitutionally required due process.
"Before this court, the government does not dispute that it provided Cook no meaningful notice or opportunity to respond to the allegations against her," Judge Bradley Garcia wrote for the two-judge majority. He did not, however, address what constitutes "cause" for a presidential removal of a Fed governor, a central issue in the case.
Garcia reasoned that since Cook was likely to prevail on her due process arguments, it was not necessary to address the meaning of "for cause" for now.
FED WORRIED BY WEAKENING JOB MARKET
With the substance of the Cook case pending and Trump considering replacements for Fed Chair Jerome Powell when his term atop the central bank expires in May, the political turmoil surrounding the usually staid and technocratic central bank will continue - keeping investors on edge.
Indeed, Miran's approach to the job could offer a telling look at the Trump administration's plans for the central bank.
Absent a board majority to approve any sweeping changes, Miran, whose term in theory only runs until January 31, may have his largest impact through how often and how intently he speaks publicly about monetary policy, the Fed's operations, the state of the economy, and things he thinks should change - even down to a Fed culture he has criticized sharply in past writings.
Whatever drama unfolds before this week's policy meeting convenes, the focus of those participating will be elsewhere - on an economy sporting a job market that is on substantially shakier footing than appeared to be the case when policymakers last met in late July, while inflation continues to drift above the Fed's 2% target thanks largely to Trump's aggressive import tariffs.
Analysts expect the job market to be the greater concern around the table, and sway Fed officials into agreeing to their first rate cut since December.
(Reporting by Howard Schneider; Editing by Dan Burns, Paul Simao and Shri Navaratnam)
