Legal Battle Looms as Former President Attempts to Dismiss Federal Reserve Member

The recent attempt by the to dismiss a member of the Federal Reserve Board has sparked a significant legal debate regarding the extent of the White House's authority over the central bank. The announced the dismissal of the member, citing allegations of mortgage fraud. However, the member has refused to step down and has vowed to take legal action, arguing that the lacks the legal authority to dismiss her without sufficient cause.

The legal framework governing the dismissal of Federal Reserve Board members is outlined in the Federal Reserve Act of 1913. According to the act, members can only be removed "for cause," but the definition of "cause" is vague. This ambiguity has led to speculation about the potential outcomes of the legal battle, which could ultimately be decided by the Supreme Court. The case hinges on the interpretation of "cause" and whether the allegations against the member constitute sufficient grounds for dismissal.

If the member files a lawsuit, she can immediately apply for a preliminary injunction to prevent her dismissal while the legal process unfolds. Both parties will submit briefs outlining their arguments, with the 's administration having the opportunity to provide more details about the allegations. The decision on the preliminary injunction will depend on whether the member can convince the judge that maintaining the status quo is necessary to prevent irreparable harm to both her and the Federal Reserve.

The preliminary injunction decision is crucial because a final ruling on whether the dismissal is justified could take several months. The case may not drag on for too long, as both parties can appeal the injunction decision to the federal appeals court. If the member's injunction request is denied and the appeal is upheld, her dismissal will remain effective. Conversely, if the injunction is granted and supported by the appeals court, she can continue serving until the case is resolved.

The legal dispute could ultimately be settled by the Supreme Court. Any decision on the preliminary injunction can be appealed to the federal appeals court and eventually reach the Supreme Court. Given the 's conservative majority in the court and its recent rulings in favor of his policies, he may have an advantage in the legal battle. However, the Supreme Court's decision in May, which allowed the to remove officials from other government agencies without providing a reason, also noted that this ruling does not imply similar powers over the Federal Reserve, describing it as a "unique private entity."

This statement suggests that the cannot dismiss Federal Reserve officials without cause, but it leaves open the possibility of dismissing the member if the allegations of mortgage fraud are deemed sufficient cause. The term "cause" has been interpreted in legal practice to include inefficiency, neglect of duty, and misconduct during employment. However, there is no consensus on these terms, which were emphasized in Congress over a century ago. Judges will need to determine whether the mortgage fraud allegations against the member fall under any of these categories.

If the case reaches the Supreme Court, it will directly test the ambiguity surrounding the dismissal of Federal Reserve officials. The allegations of mortgage fraud stem from the member's application for two mortgage loans in 2021, which were submitted two weeks apart. The 's administration alleges that the member falsely claimed both properties as primary residences to secure better loan terms. The 's administration has made similar allegations against other critics, which they have denied.