A U.S. appeals court declined on Monday to allow Donald Trump to fire Federal Reserve Governor Lisa Cook in the latest step in a legal battle that threatens the Fed's longstanding independence. It's the first time a president has pursued such action since the central bank's founding in 1913.

The decision by the U.S. Court of Appeals for the District of Columbia Circuit means that the administration only has hours to appeal to the U.S. Supreme Court if it hopes to block Cook from attending the Fed's policy meeting on Tuesday and Wednesday where it is expected to cut U.S. interest rates to shore up a cooling labour market.

The D.C. Circuit denied the Justice Department's request to put on hold a judge's order temporarily blocking the Republican president from removing Cook, an appointee of Democratic former President Joe Biden.

U.S. District Judge Jia Cobb had ruled on 9 September that Trump's claims that Cook committed mortgage fraud before taking office, which Cook denies, likely were not sufficient grounds for removal under the law that created the Fed.

The decision was 2-1, with Circuit Judges Bradley Garcia and J. Michelle Childs in the majority, both of whom were appointed by President Joe Biden. Circuit Judge Gregory Katsas, a Trump appointee, dissented.

In an opinion joined by Childs, Judge Garcia wrote that Cook is likely to prevail on her claim that she has been denied due process in violation of the U.S. Constitution's Fifth Amendment.

"Before this court, the government does not dispute that it provided Cook no meaningful notice or opportunity to respond to the allegations against her," the judge wrote.

A White House spokesperson did not immediately respond to a request for comment.

The Fed, which had no comment on the ruling, has not made any legal arguments in the case. It has asked the courts for a swift resolution of the matter, and has said it will abide by any court ruling.

Cook's lawyers did not immediately respond to a request for comment.

Separately, the Senate on Monday night narrowly confirmed Trump's nominee to a recently vacated seat on the Fed board. The largely party-line 48-47 vote means that it is likely that Stephen Miran, currently chair of the Council of Economic Advisers, will also participate in this week's rate-setting meeting alongside Cook.

'For cause' 

In setting up the Fed, Congress included provisions to shield the central bank from political interference. Under the law that created the Fed, its governors may be removed by a president only "for cause," though the law 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.

In Monday's opinion, Garcia wrote that because Cook’s due process claim was "very likely meritorious", there was no need for the court to address the meaning of 'for cause' at this point in the case.

Cook, the first Black woman to serve as a Fed governor, sued Trump and the Fed in late August. Cook has said the claims did not give Trump the legal authority to remove her and were a pretext to fire her for her monetary policy stance.

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.

Ramifications

The case has ramifications for the Fed's ability to set interest rates without regard to the wishes of politicians, widely seen as critical to any central bank's ability to function independently to carry out tasks such as keeping inflation under control.

Trump this year has demanded that the Fed cut rates aggressively, berating Fed Chair Jerome Powell for his stewardship over monetary policy. The Fed, focusing on fighting inflation, has not done so, though it is expected this week to make a cut.

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