Lev Menand on Trump's Attempt to Fire the Fed's Lisa Cook

SPEAKER_2 (0:02)

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Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, another day, another emergency episode.

Joe Weisenthal (0:26)

I mean, we're back to emergency episodes, and this is obviously one of the big ones.

Tracy Alloway (0:30)

Yeah, so we are recording this on August 26th, and we had news overnight that President Donald Trump intends to fire Lisa Cook from the Federal Reserve Board. Obviously, this feeds right into the debate over central bank independence and what the president actually has a right to do when it comes to hiring and firing. And the market reaction this morning, gold up a bit, the dollar down. But what's really interesting is we have yields at the long end of the Treasury market picking up, which would suggest there's more of a risk premium being built into that market.

Joe Weisenthal (1:07)

No, totally. The concerns over Fed independence sort of cast a whole shadow of the recent Jackson Hole event.

Of course, we're recording this August 26th. This morning, we put out an episode with Adam Pozen, which was sort of about this surreal experience there, where everybody knew that the threats to central bank independence were the number one story in monetary policy and yet no one was really talking about it. Maybe people were trying to lay low, trying to act business as usual, and then we get this. What was something that maybe people hoped to imagine away or sort of not look at the other direction is now right here.

Tracy Alloway (1:45)

Well, we also had Trump tweeting that he wanted to fire Lisa Cook while Powell was giving his speech, which definitely underscores the tone of Jackson Hole recently. Okay, so there's clearly a lot to talk about, including whether or not Trump can actually do this from a legal perspective. And I am glad to say we have the perfect guest, someone we have spoken to before on this exact topic of Central Bank independence. We're going to be speaking with Lev Menand, professor at Columbia Law School and also the author of The Fed Unbound. Lev, thanks so much for coming on the show again.

Lev Menand (2:18)

Thanks for having me back.

Tracy Alloway (2:20)

So I'm going to start with a very simple question. Is there any precedent in history for a president firing someone from the Federal Reserve Board in this way?

Lev Menand (2:31)

No, there have been no firings of members of the Fed Board or by the president since the Fed Board was first created by Congress in 1913 And there haven't been any attempts by presidents to remove any officers of the United States for cause in over a century. And so we're in unchartered waters here in a number of different respects.

Joe Weisenthal (2:55)

We're going to get into the ostensible reasons for the firing, obviously. But as lawyers, what does for cause mean?

Lev Menand (3:05)

So for cause, one of the legal questions here is what constitutes cause under the statute. And in federal law, in independent agency law, usually Congress specifies the causes. And there are three common ones, inefficiency, neglect of duty, and malfeasance and office. These are the classic causes. The Federal Reserve Act is unusual for not specifying specific causes, but saying simply for cause. So one issue here is, is it just the standard causes or do other things count? And that's really important because the standard causes all have to do with your conduct and carrying out your job. Malfeasance in office as opposed to malfeasance out of office. There was an intent by Congress not to include private misconduct as a ground for presidential removal from office. And so one question here is whether private misconduct even counts. I think something that's very clear, we should just say up front. Allegations of private misconduct definitely don't count. That does not come within the statute, and that's one of the reasons this is-

Joe Weisenthal (4:08)

Sorry, why?

Lev Menand (4:10)

Because of all the due process concerns that are associated. An allegation isn't sufficient for a removal for cause because for cause requires a determination that misconduct took place. An allegation isn't sufficient for a determination. An allegation is totally sufficient to fire the Secretary of the Treasury because that person serves at the pleasure of the President, and the President can say, I fired the Secretary because there are allegations that the Secretary engaged in misconduct. That's totally sufficient, but Lisa Cook is not an official that serves at the pleasure of the President. Lisa Cook is closer to being a federal judge, an official who has a tenure in office, a vested legal right to serve in their position, and to take that away, the President has to follow a process and have a ground and make a conclusion. None of that has happened here, which is another reason that this is an illegal firing.