On Nov. 5 a sitting Federal Reserve governor is due at the White House. A presidential memo tells Lisa Cook to sit before three presidential appointees and take questions for up to four hours. The subject is her mortgage paperwork. She denies any fraud, and no court has found any. The date lands two days after the Nov. 3 vote.
The memo is dated Oct. 7. It caps the hearing at four hours, in its words “no longer than 4 hours.” The committee is three people. Kevin Hassett runs the National Economic Council. Andrea Lucas chairs the Equal Employment Opportunity Commission. Keith Sonderling is the acting ethics director and also labor secretary. All three were appointed by President Trump. Justice Department officials can question her. At the end, the committee must send the president written findings and say whether there is cause to remove her.
Last year Bill Pulte, who heads the Federal Housing Finance Agency, produced documents. He said they showed Cook listed more than one property as her primary residence on mortgage forms. Trump then tried to fire her. Cook sued. In court she has argued two things. The White House never showed her evidence at first or let her answer. And any slip in her paperwork, she says, wouldn't justify firing her. Judge Jia Cobb blocked the firing and let her keep her seat. The Supreme Court upheld that order in June. The high court largely sided with Cook. It found she couldn't be fired without basic procedural protections. It didn't rule on whether she committed fraud, or on whether the paperwork would justify removal. No president had tried this before. The law allows removal only “for cause,” a standard no court had applied to a Fed official.
What each side says
If the committee recommends removal, the paper says, the president could try again to fire her. His argument would be that she has now had her say, which the Supreme Court said she was owed. Kathryn Judge, a Columbia law professor who has followed the case, expects the hearing to pass that test. What it won't do, she says, is answer the bigger question. No court has defined what grounds let a president fire a Fed official. Cook's lawyers, Abbe Lowell and Norm Eisen, say they've asked the White House whether the process is meant in earnest. They have “grave doubts” that it's a lawful hearing, and they say a fair one would clear her. The day after the hearing, both sides owe Judge Cobb a joint plan for the lawsuit.
Our read
Fixed Income (IN02). We take no side on the president or the governor, and the merits belong to a judge. The Fed is built to set rates at arm's length from the White House. Economists call that distance essential. A public fight over who sits on the board, and who can remove them, is one more thing anyone lending for decades has to weigh. By the Journal's markets wrap, the 10-year Treasury yield ended Friday at 5.243%. Earlier in the week it hit its highest level in 24 years. That climb has its own causes, and we're not predicting where it goes next.
This is why our safe money sits in Treasury bills and floating-rate Treasury notes, whose interest resets with short-term rates. The bill fund (SGOV) is in 49 of our 81 model books and the floating-rate fund (USFR) in 14. Short paper doesn't have to guess how a hearing ends. Long bonds do, and we still avoid them. On this news the desk did nothing. No new money went into stocks. The calendar is crowded. The Fed meets Oct. 27 and 28, the vote is Nov. 3, the hearing is Nov. 5, and the court filing is due the next day. If your plan needs money in the next year or two, check that it's parked somewhere that doesn't care how any of those days turn out. You check the umbrella while the sky's still clear.