WASHINGTON (AP) — A bipartisan group of former Federal Reserve chairs, Treasury secretaries, and top White House economists urged the Supreme Court Thursday to reject an attempt by President Donald Trump to fire Federal Reserve governor Lisa Cook.
In a filing with the court, the former officials argued that allowing the removal to proceed would undermine the Fed’s longtime independence from day-to-day politics and lead to higher inflation and a weaker economy.
The filing from such an influential group underscores the unpredecented nature of Trump’s effort to remove Cook and the potentially far-reaching consequences for the economy if he were to succeed.
“There is broad consensus among economists, based on decades of macroeconomic research, that a more independent central bank will lead to lower and more stable inflation without creating higher unemployment,” the brief, signed by 18 top economists from both political parties, said. “Independent central banks also help increase confidence in the stability of the U.S. dollar, enabling the United States, businesses, and households to borrow at lower interest rates.”
Former Fed chairs Janet Yellen, Ben Bernanke, and Alan Greenspan signed onto the filing. Former Treasury Secretaries Henry Paulson, Lawrence Summers, Robert Rubin, Timothy Geithner, and Jacob Lew also signed. Paulson served in the George W. Bush administration while Rubin and Summers served in Bill Clinton’s administration. Geithner and Lew served in President Barack Obama’s White House.
Trump sought to fire Lisa Cook last month after members of the administration accused her of mortgage fraud, the first time a president has tried to remove a Federal Reserve governor in the institution’s 112-year history. Cook has denied the accusations and some documents have surfaced that appear to undercut the fraud claims.
Cook sued to keep her job and two federal courts have ruled that she can stay in her position while her case is considered by the courts.
Federal Reserve officials aren’t like cabinet secretaries and don’t serve at the pleasure of the president. Instead, they can only be fired “for cause,” which has traditionally meant some kind of malfeasance or neglect on the job. At issue in the legal fight is whether the mortgage fraud allegations are sufficient cause for her to be removed. Governors vote on the Fed’s interest-rate policies as well as oversee banking regulation.
Bernanke and the other former officials argued in their filing that the perception of Fed independence is crucial for the central bank, because it can fight inflation much more effectively if businesses and workers — whom the filing refers to as “price-setters” — believe the Fed will fight to keep inflation at its 2% target.
“If the Federal Reserve announces its commitment to a policy of low inflation and the price-setters believe that the commitment is real, then price-setters will choose lower prices (and lower wages) consistent with that belief,” they write. The Fed typically seeks to combat inflation by raising its short-term interest rate to cool borrowing and spending.
But if political pressure forces the Fed to shift its focus away from inflation and instead lower its key interest rate to provide a short-term boost to the economy, “the price-setters will not believe a future Fed announcement of a commitment to low-inflation policies and will therefore not structure their own economic decisions around the expectation of low inflation,” the brief said. “Instead, price-setters will expect inflation to go up and act accordingly, leading to a vicious cycle of high inflation and low employment.”
“Central bank independence is the solution that Congress and the President have chosen, effectively tying their hands, like Ulysses as he passed the sirens, to protect against the risk that monetary policy will be mishandled,” they added.
Former officials from both parties also signed onto the brief, including Phil Gramm, a former Republican senator from Texas, as well as Jason Furman, who was a top economic adviser to Obama; Glenn Hubbard and Gregory Mankiw, economic advisers to George W. Bush; Kenneth Rogoff, former chief economist at the International Monetary Fund; and Cecilia Rouse, a top adviser to former president Joe Biden.
John Cochrane, a frequent Fed critic and a senior fellow at the right-leaning Hoover Institution signed onto the brief, as did Jared Bernstein, an adviser to Biden.
The Trump administration appealed the case to the Supreme Court after an appeals court upheld an earlier court ruling that allowed Cook to keep her job. The administration argues that the allegations of mortgage fraud provide the president with sufficient cause to remove Cook from a position that included oversight of the financial system.
