Trump's bid to control the Fed stalled by U.S. court

Court: "No basis to remove board member"

Lisa Cook, the board member Trump tried to remove

Court grants injunction protecting position

'Pro-Trump' majority on FOMC blocked

A U.S. federal court ruled that Lisa Cook, a Fed board member whom President Donald Trump sought to oust, can remain in office for the time being. The decision dealt a setback to Trump's plan to take control of the Fed.

The U.S. District Court for the District of Columbia on the 9th (local time) prohibited President Trump from removing Cook. Cook sued in response to the president's removal decision, and the court allowed her to keep her post while the lawsuit proceeds.

As a result, Cook can attend and vote at this month's Federal Open Market Committee (FOMC) meeting. Trump’s strategy to secure a majority on the Fed Board was thus temporarily thwarted.

Cook filed for a provisional injunction on the 28th of last month asking the court to protect her status while the lawsuit against the Trump administration proceeds. President Trump had earlier notified Cook of her removal, alleging mortgage fraud. The president's side took issue with Cook listing homes in Michigan and Atlanta as "residential" on a 2021 mortgage application. They argued that residential loans have lower interest rates and higher loan limits than investment loans, and that this suggested fraud aimed at exploiting those differences.

However, current law limits the circumstances in which the president can remove a Fed board member to "for cause," which sparked controversy. "For cause" is generally interpreted to mean illegal conduct or dereliction of duty. Cook's side countered that "baseless allegations related to a mortgage application submitted before Senate confirmation" do not meet that standard.

Judge Jia Cobb, who handled the injunction hearing, wrote in her ruling that "it is a reasonable interpretation to limit removal grounds for board members to conduct during their tenure and whether they fulfill legal obligations," concluding that the mortgage fraud allegations presented by President Trump did not constitute grounds for removal. She also noted the possibility that the removal process could have violated constitutional due process rights.

The ruling is likely to be a major blow to President Trump's plan to take control of the Fed. Cook's term runs through 2038. Trump planned to remove Cook and name two new board members, including a replacement for Adriana Kugler, who recently resigned early. Combined with his prior nominees Christopher Waller and Michelle Bowman, he could have effectively filled four of the seven sitting board members (excluding regional Federal Reserve bank presidents) with his own choices, securing a majority of the 12 FOMC members.

President Trump has publicly criticized Fed Chair Jerome Powell for not acceding to calls for rate cuts and is accelerating efforts to select the next chair. He has repeatedly pressured the Fed to lower the benchmark interest rate to around 1%.

Im Dayeon, reporter allopen@hankyung.com