Slow down and protect things: Fed independence and the Supreme Court

The White House’s ‘move fast and break things’ attack on the Fed hit a roadblock yesterday: the Supreme Court.

The White House had sought the immediate removal of Lisa Cook from her role as a Fed Governor while her court case over her firing proceeded. Two lower courts last month had allowed Cook to remain in her role. Yesterday, the Supreme Court did not settle the issue but delayed the decision to early next year:

Delay is a good. Cook will remain at the Fed for the time being. As I explained last week, Cook’s removal could have triggered a cascade of events that would severely and rapidly undermine Fed independence. The length of the delay likely eliminates one of the worst-case scenarios. The five-year review of the Federal Reserve Bank Presidents by the Board should be complete before the Supreme Court’s decision is reached, protecting it from political interference.

Delay also undercuts the White House’s ‘move fast’ strategy. Recall that it was only August 20th when Bill Pulte, of the FHFA, posted allegations against Lisa Cook on social media. There had not been (and still has not been) any formal investigation. Less than a week later, the President attempted to fire Cook. Cook sued to keep her position, and the high-stakes legal battle began. Slowing down does not guarantee that the Supreme Court will protect Fed independence. It does protect against a chaotic dismantling of Fed independence.

The Supreme Court created some breathing space. The threats to Fed independence remain real. The tenure protections of Federal Reserve governors are critical. Until the Supreme Court affirms those protections, there is a risk that the Fed will come under the control of the White House.