Banking and Finance Law Daily Wrap Up, SUPREME COURT NEWS—Chair Powell present as Court hears argument in Fed governor’s case against Trump, (Jan 22, 2026)

By Jason Albright, J.D.

“Let's talk about the real-world downstream effects of this,” observed Justice Kavanaugh, “because, if this were set as a precedent… what goes around comes around.”

On Wednesday, with Federal Reserve Chair Jerome Powell and former Chair Ben Bernanke both present in the audience, the U.S. Supreme Court heard oral argument in Trump v. Cook, concerning whether the High Court should stay a federal district court ruling that prevented the President from removing Dr. Lisa Cook, a member of the Federal Reserve Board of Governors whom Trump purported to fire in August 2025 via a social media post accusing her of making “false statements on one or more mortgage agreements.” The case tests the strength of the statutory “for cause” removal protections for members of the Federal Reserve Board of Governors, and it became clear early in the proceedings that the Court was likely to rule in favor of the endurance of those protections. As Justice Kavanaugh asked in a colloquy with the Solicitor General, “All of the current president's appointees would likely be removed for cause on January 20th, 2029, if there's a Democratic President or January 20th, 2033, and then we're really at at-will removal. So what are we doing here?”

Cook’s tenure at the Fed. President Biden nominated Cook for a 14-year term on the Federal Reserve Board of Governors on May 12, 2023. Confirmed by the Senate on September 6, 2023, her term was set to expire in 2038.

Pulte’s referral letter and Trump’s resignation ultimatum. On August 15, 2025, the Director of the Federal Housing Finance Agency, William Pulte, sent a referral letter to the Attorney General accusing Cook of committing mortgage fraud in June and July 2021, before she was nominated and confirmed to the Board. Then, on August 20, 2025, Pulte publicly released two screenshots of pages from the letter on the social media platform X. Within 30 minutes, President Trump posted on the social media platform Truth Social that “Cook must resign, now!!!,” and he shared a link to a news article regarding the allegations.

Purported firing. Two days after Pulte posted the referral letter, Trump said in an interview that “what [Cook] did was bad” and that he would “fire her if she doesn’t resign.” Then, on August 25, Trump posted screenshots of a two-page letter to his Truth Social account purporting to fire her. Cook alleges that she was provided no advance notice of the letter before it was posted.

The letter, addressed to Cook, stated, “Pursuant to my authority under Article II of the Constitution of the United States and the Federal Reserve Act of 1913, as amended, you are hereby removed from your position on the Board of Governors of the Federal Reserve, effective immediately.” The letter added, “The Federal Reserve Act provides that you may be removed, at my discretion, for cause. See 12 U.S.C. § 242. I have determined that there is sufficient cause to remove you from your position.”

Reference to Pulte’s criminal referral. In support of this conclusion, the letter cited Pulte’s August 15 criminal referral. Trump stated that “there is sufficient reason to believe you may have made false statements on one or more mortgage agreements.” Trump said Cook “signed one document attesting that a property in Michigan would be [her] primary residence for the next year,” and “[t]wo weeks later... signed another document for a property in Georgia stating that it would be [her] primary residence for the next year.” Trump claimed that it was “inconceivable that [Cook was] not aware of [her] first commitment when making the second,” and it was “impossible that [she] intended to honor both.”

“[T]remendous responsibility for setting interest rates…” Trump then acknowledged the Federal Reserve’s “tremendous responsibility for setting interest rates and regulating reserve and member banks.” He continued: “The American people must be able to have full confidence in the honesty of the members entrusted with setting policy and overseeing the Federal Reserve. In light of your deceitful and potentially criminal conduct in a financial matter, they cannot and I do not have such confidence in your integrity. At a minimum, the conduct at issue exhibits the sort of gross negligence in financial transactions that calls into question your competence and trustworthiness as a financial regulator.” Trump concluded by stating that “I have determined that faithfully executing the law requires your immediate removal from office.”

Lawsuit and preliminary injunction. Cook filed a six-count complaint on August 28, 2025, and in September, the U.S. District Court for the District of Columbia granted a preliminary injunction reinstating her, pending ongoing litigation.

Denial of administration’s motion to stay. The Trump administration appealed to the D.C. Circuit, which, in a brief per curiam order, denied its motion to stay the preliminary injunction.

Supreme Court’s deferral of immediate administrative stay. The Trump administration then filed an emergency application to the Supreme Court for an immediate administrative stay of the district court’s order, which the High Court deferred on October 1, 2025.

Wednesday’s oral argument was the culmination of that deferral.

Argument for Trump. Solicitor General D. John Sauer appeared for the President, arguing that “Deceit or gross negligence by a financial regulator in financial transactions is cause for removal.” Over a two-week period in 2021, according to Sauer, “Cook submitted mortgage applications for two properties in Michigan and Georgia. In both, she told the lender that, within 60 days, she would occupy that property for one year as her principal residence.” And as Trump said in removing her, according to Sauer, “it is inconceivable that she intend—she was unaware of the first commitment when making the second, and it is impossible that she intended to honor both. Such behavior impugns Cook's conduct, fitness, ability, or competence to serve as a governor of the Federal Reserve.”

“The American people,” argued Sauer, “should not have their interest rates determined by someone who was, at best, grossly negligent in obtaining favorable interest rates for herself.”

Sauer further argued that Cook's conception of just cause for discharge “contradicts the term's longstanding meaning and overrides Congress's deliberate decision not to impose the inefficiency, neglect, or malfeasance standard here.” And her claim that she has a property interest in her public office, he said, “was roundly rejected by the founding generation as pernicious in a republican system of government.”

Dr. Cook’s argument. Paul Clement, appearing for Cook, argued that the Federal Reserve is a uniquely structured entity with a distinct historical tradition. Part of that historical tradition, asserted Clement, “is an unbroken history going back to its founding in 1913 in which no president, from Woodrow Wilson to Joseph Biden, has ever even tried to remove a governor for cause, despite the ever-present temptation for lower rates and easier money.”

Even in this case, said Clement, President Trump “recognizes the unique status” of the Federal Reserve “by neither arguing that the removal restriction is unconstitutional, nor asserting the ability to remove a Fed governor without cause.”

The sum of the Solicitor General’s arguments, Clement said, “would reduce the removal restriction in this unique institution to something that could only be recognized as at-will employment. No procedural due process before removal. No judicial review after removal. No preliminary injunction to preserve the status quo. And a conception of cause so capacious that apparent misconduct or gross negligence suffices.”

That, Clement asserted, “makes no sense. There's no rational reason to go through all the trouble of creating this unique quasi-private entity that is exempt from everything from the appropriations process to the civil service laws just to give it a removal restriction that is as toothless as the president imagines.”

If the removal restrictions of the Federal Reserve Act have “real substantive and procedural bite, then this emergency application should be denied,” he argued. “There is simply no reason to abandon over a hundred years of central bank independence on an emergency application on a preliminary record.”

Justice Sotomayor’s initial observations. In her initial response to Sauer’s argument, Justice Sotomayor argued that the D.C. Circuit, in its stay opinion, addressed only the issue of Cook’s alleged property interest in her employment, and not “all of the things you've talked about today: What the definition of ‘cause’ is, including whether it includes pre-office conduct and how much or what nexus there has to be between pre-office conduct and post-office conduct.” The court below, Sotomayor pointed out, “didn't address whether the president's determination of cause is reviewable and under what standard.”

Noting that the President, by Sauer’s own admission, cannot fire someone for disagreeing with his policy choices in this context, Sotomayor observed, “So it's not as if keeping her is going to thwart any right he has to run the department because he has none.” Further, “it's not as if she's been incompetent, negligent, or committed malfeasance while in office. This is something pre-office. So keeping her in office is not causing an immediate harm to the agency.”

“[T]he public’s confidence and… the world’s confidence…” Finally, observed Justice Sotomayor, “we know that the independence of the agency is very important and that that independence is harmed if we decide these issues too quickly and with not due consideration.” Waiting, she said, “to have at least the lower courts look at these issues first makes most—the most sense to the public's confidence and to the world's confidence about the due process of law.”

Sauer responded that the administration is “seeking a stay of an unprecedented preliminary injunction, restoring a principal officer of the United States after being removed by the President of the United States.”

Justice Sotomayor noted, in turn, “A hundred and twelve years, and it's unprecedented that any Federal Reserve officer has ever—has ever been removed. So the unprecedented nature of this case is a—is a part of what the president did, not what Ms. Cook did.”

Justice Kavanaugh and the “big picture.” It was in Justice Kavanaugh’s questions for Sauer, however, that the Court’s broad policy concerns about the case were underscored. Referring to the independence of the Federal Reserve and, by implication, public confidence in U.S. monetary policy, Kavanaugh asked Sauer, “What, in your view, is the purpose of that independence?”

Sauer answered that it “protects the governors for removal for policy disagreement or for no reason at all,” but Kavanaugh pressed on: “And why is that independence important in your view?”

Sauer responded that “we emphasize that there's a balance struck here. This is not a ironclad ‘you can never be removed.’”

Justice Kavanaugh continued, “But, on that, your position that there's no judicial review, no process required, no remedy available, a very low bar for cause that the president alone determines, I mean, that would weaken, if not shatter, the independence of the Federal Reserve that we just discussed.”

Sauer disagreed with Kavanaugh’s characterization and argued that the administration’s position urges “a very high bar. It's a very strong protection because it does protect them from the one thing that Congress was apparently most worried about, which is a removal for policy disagreement.”

Noting the absence of judicial review to check the President’s determination in the view promoted by Sauer, Kavanaugh said, “Let's talk about the real-world downstream effects of this, because, if this were set as a precedent, it seems to me, just thinking big picture, what goes around comes around. All of the current president's appointees would likely be removed for cause on January 20th, 2029, if there's a Democratic President or January 20th, 2033, and then we're really at at-will removal. So what are we doing here?”

Consequences for “the structure of the government.” Sauer responded that the argument “strikes me as a policy argument,” to which Kavanaugh replied, “Well, history is a pretty good guide. Once these tools are unleashed, they are used by both sides and usually more the second time around…. We have to be aware of what we're doing and the consequences of your position for the structure of the government.” Sauer’s position, Kavanaugh summarized, “incentivizes a president to come up with what—as the Federal Reserve former governors say, trivial or inconsequential or old allegations that are very difficult to disprove. It incentivizes kind of the search and destroy and find something and just put that on a piece of paper, no judicial review, no process, nothing, you're done.”

Dispositional issues. What remained for the court appeared to be a number of dispositional issues, specifically regarding how, and to whom, to remand the multiple factual questions raised in this unique emergency proceeding, many of which were never fully addressed below.

Clement, observing that “this whole case is irregular,” urged the court “if that seems to be the path of least resistance, to decide this case in a way that is going to essentially obviate the need for this Court to decide it again in a couple of years...”

Justice Sotomayor echoed, “This whole case is irregular, starting with the Truth Social notice or thinking of it as notice at all. It certainly didn't invite an opportunity to be heard. But that's where we are.” There were questions about Cook’s mortgage application, including issues raised in a letter from Cook’s counsel, which was never given to the President, “that basically says that the application included notice that this was a vacation home,” said Sotomayor. “So I don't know why a factual hearing would be irrelevant.”

In his rebuttal, the Solicitor General himself summarized, “if the Court decides to sort of send the case back to have many—many more of these issues that we discussed today to be aired, we urge the Court, and I think Mr. Clement wouldn't disagree, to direct the lower courts to proceed very expeditiously.”

The petition is No. 25A312.

Attorneys: D. John Sauer, Solicitor General, U.S. Department of Justice. for Donald Trump. Paul D. Clement (Clement & Murphy) and Abbe David Lowell (Lowell & Associates, PLLC) for Lisa Cook.

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