• Key insight: The Supreme Court Wednesday expressed skepticism of the government's argument for expansive presidential power in removing Federal Reserve governors. 
• Expert quote: "Your position that there's no judicial review, no process required, no remedy available, [and] a very low bar for cause that the president alone determines. That would weaken, if not shatter, the independence of the Federal Reserve." — Justice Brett Kavanaugh
• Forward look: Experts fear that the case could have profound implications for interest rates and global confidence in U.S. financial markets if the president is able to freely remove members of the central bank.

WASHINGTON — The Supreme Court heard oral arguments on Wednesday in a case concerning President Donald Trump's purported removal of Federal Reserve Gov. Lisa Cook, and justices appeared unconvinced of the Justice Department's expansive view of presidential removal power at the central bank.

The issue before the court is whether to grant the White House a stay of an emergency injunction issued by a lower court last year, effectively removing Cook from the Federal Reserve Board pending the outcome of fuller litigation. President Trump published a screenshot of a letter to Cook in August informing her that she was removed from her position because of allegations of mortgage impropriety. Cook sued Trump on the grounds that the Federal Reserve Act's "for cause" protections shield her from removal except for cases of inefficiency, neglect or malfeasance, thus rendering Trump's purported removal void. 

U.S. Solicitor General John Sauer argued that the law gives the president broad discretion to determine what counts as "cause" for removal, and that those decisions are discretionary and therefore unreviewable by the judiciary. Sauer also argued that the statute does not specify any hearing process for the president to resort to when considering a removal, and because Cook cannot have a vested property interest in her position on the Fed board, she cannot resort to Fourth Amendment protections against unlawful search and seizure.

But Justice Brett Kavanaugh, a Trump appointee from his first term, was notably unconvinced of that broad and executive-friendly interpretation of the law. Allowing the president to remove a Fed governor without any effective means of ensuring that the removal is based in fact would render the for-cause protections irrelevant, Kavanaugh observed.

"Your position that there's no judicial review, no process required, no remedy available, [and] a very low bar for cause that the president alone determines," Kavanaugh said. "That would weaken, if not shatter, the independence of the Federal Reserve that we just discussed."  

Kavanaugh added that the court ruling in Trump's favor would set a precedent that would assuredly be used by opposing politicians whenever they return to power, rendering the Fed an executive agency like any other.

"Once these tools are unleashed, they're used by both sides — and usually more the second time around," Kavanaugh said. "We have to be aware of what we're doing and the consequences of your position for the structure of the government."

The justices also questioned whether the process by which Cook was purportedly removed and the evidence of wrongdoing met the statutory and constitutional standards that apply. Justice Sonia Sotomayor, an Obama appointee, pointed out that the facts of the case — the underlying "cause" upon which Trump's actions were based — are not yet established, rendering any judgement about their validity by the high court premature until a lower court has established the facts.

"Is it grossly negligent to make a mistake on a mortgage application?" Sotomayor asked. "There is a factual issue. Now the question is, who resolves that issue — the level of review of that decision."

Chief Justice John Roberts, meanwhile, pressed Cook's attorney, Paul Clement — who served as U.S. solicitor general and acting attorney general under George W. Bush — about whether or not the nature of Cook's purported infraction makes a difference. Cook's removal was precipitated by a criminal referral posted on social media by Federal Housing Finance Agency Director Bill Pulte, in which he said mortgage applications made by Cook in 2021 claimed primary residence on two properties in different states, implying fraud against the mortgage lender and potentially availing Cook of a more favorable interest rate. 

Justice Samuel Alito pressed Clement on what due process for someone in Cook's position looks like, since no appeals process for "for cause" removal is alluded to in the statute. Clement said the main missing element in this case is a forum for Cook to present her side of the issue to a disinterested arbiter.

"What is the minimum that the executive, in your view, has to provide the minimum type of hearing that you think is required by the statute?" Alito asked. 

"One is notice, and that's really not much of an issue here. I agree with that," Clement said. "The second is an opportunity to provide evidence to the decision maker, and we don't think that happened here. And then the third thing is some effort to keep the final decision maker from prejudging the issue."

Roberts asked whether the president should be able to judge an offense as removable even if the offense was inadvertent. Clement said that it would be difficult to imagine that Congress, in drafting the Federal Reserve Act, intended for such a trivial and inadvertent offense — and guilt that is still unproven in any court — to serve as grounds for removal, especially when one considers the great care and ingenuity that Congress employed in devising a decentralized central bank. 

"There's no rational reason to go through all the trouble of creating this unique quasi-private entity ... just to give it a removal restriction that is as toothless as the president imagines," Clement said. "If that removal restriction has real, substantive and procedural bite, then this emergency application should be denied. There is simply no reason to abandon over 100 years of ... independence on an emergency application on a preliminary record."