Lisa Cook and the Fed's independence on trial

January 21, 2026

Today, the Supreme Court is hearing arguments regarding Lisa Cook, a current Federal Reserve Board Governor.  This is a landmark case and will set a precedent for the independence of the Federal Reserve.  

So what’s going on?   Let’s first back up.  The Federal Reserve sets interest rate policy.  It does so by a committee of 12 people who vote.  Lisa Cook is currently one of those 12 people.  The White House wants more control over interest rates.  If a member is removed, the President nominates someone to replace her.  So the White House wants new people on that committee.  To get new people, it must remove current people.

Now, the Fed is designed by law to be independent.  So, Fed members cannot be fired like regular govn employees.  Instead, the law says they can be removed only for cause.

That phrase – “for cause” – is the whole ballgame today.  The Supreme Court must rule whether the cause in this case justifies Lisa Cook’s removal.

What is the potential cause to remove Lisa Cook?   The White House argues that Cook committed mortgage fraud by claiming “primary residence” on two separate homes in two separate states.  (A primary residence usually gets a lower mortgage rate from the bank.) 

However, the DOJ has not filed criminal or civil charges.  Legal commentators say that the govn likely lacks evidence of criminal intent.   So, she has not been indicted of anything – much less convicted.  The White House is arguing that the claim of fraud is enough to satisfy the "cause" requirement. 

Lower courts have ruled that “for cause” in legal terms usually refers to actions committed while in the current role.  So, they refused to remove her.  So now the ball has been kicked all the way to the Supreme Court.

Now, why is this important to us?  Well, as we’ve said many times, the independence of the Federal Reserve is crucial to its mission.  If the White House is allowed to remove a Fed member for a claim of wrongdoing, then likely Lisa Cook will only be the first.  The obvious second case is the recent DOJ investigation into chair Jay Powell. 

If the White House removes enough Fed enough governors to get a majority of members who are loyal to President Trump’s wishes, then the Fed is no longer independent at that point.  Needless to say, that will be a bad day for the markets.  

It’s unclear how SCOTUS will rule.  The Supreme Court is currently 6-3 conservatives and have shown a deference in recent decisions to giving more power to the Executive branch.  However, the court has also recognized in recent rulings that the Fed is a unique institution in terms of its independence.  So… who knows.  Today is just arguments.  The actual ruling will take months.  But it’s on our radar.