US judge temporarily blocks Trump from removing Fed Governor Cook

(Reuters) - A federal judge on Tuesday temporarily blocked President Donald Trump from removing Federal Reserve Governor Lisa Cook, an early setback for the White House in an unprecedented legal battle that could upend the central bank's long-held independence.

The preliminary ruling by U.S. District Judge Jia Cobb in Washington, D.C. found that the Trump administration's claims that Cook committed mortgage fraud prior to taking office were likely not sufficient grounds for her removal.

Cook denies any wrongdoing.

"President Trump has not identified anything related to Cook’s conduct or job performance as a Board member that would indicate that she is harming the Board or the public interest by executing her duties unfaithfully or ineffectively," Cobb wrote in her ruling.

Trump moved to fire Cook in late August, but the Fed has said she remains in her position. The Fed declined to comment on the decision.

Cobb's ruling prevents the Fed from following through on Cook's firing while her lawsuit moves forward.

The case, which will likely end up before the U.S. Supreme Court, has ramifications for the Fed's ability to set interest rates without regard to politicians' wishes, widely seen as critical to any central bank's ability to keep inflation under control.

Trump has demanded that the U.S. central bank cut rates immediately and aggressively, berating Fed Chair Jerome Powell for his stewardship over monetary policy. The central bank is expected to deliver a rate cut at its September 16-17 policy meeting.

The White House had no immediate comment. Trump did not respond to a reporter's question about the ruling.

"This ruling recognizes and reaffirms the importance of safeguarding the independence of the Federal Reserve from illegal political interference," Cook's lawyer Abbe Lowell said in a statement.

The law that created the Fed says governors may be removed only "for cause," but does not define the term nor establish procedures for removal. No president has ever removed a Fed governor, and the law has never been tested in court.

Cobb found that the "best reading" of the law is that it only allows a Fed governor to be removed for misconduct while in office. The mortgage fraud claims against Cook all relate to actions she took prior to her U.S. Senate confirmation in 2022.

Trump and William Pulte, the Federal Housing and Finance Authority director appointed by the president, say Cook inaccurately described three separate properties on mortgage applications, which could have allowed her to obtain lower interest rates and tax credits.

The U.S. Justice Department has also launched a criminal mortgage fraud probe into Cook and has issued grand jury subpoenas out of both Georgia and Michigan, according to documents seen by Reuters and a source familiar with the matter.

Cook sued Trump and the Fed, saying the claims did not give Trump the legal authority to remove her and were a pretext to fire her for her monetary policy stance.

Cook, the first Black woman to serve as a Fed governor, has denied the fraud claims in court filings, saying that she "did not ever commit mortgage fraud."

But she has said that even if the allegations were true, it would not be grounds for removal because the alleged conduct occurred before she was confirmed by the U.S. Senate.

The Trump administration has argued that the president has broad discretion to determine when it is necessary to remove a Fed governor, and that courts lack the power to review those decisions.

(Reporting by Daniel Wiessner in Albany, New York and Ismail Shakil. Additional reporting by Andrea Shalal, Howard Schneider, Mike Scarcella and Nate Raymond; Editing by Noeleen Walder, Alexia Garamfalvi, Paul Simao and Sam Holmes)