Supreme Court appears sceptical over Fed firing

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Good morning from the Financial Times. Today is Thursday, January 22nd, and this is your FT News briefing. Donald Trump says he has a future deal for Greenland, and the Mercosur trade agreement has hit. Another snag. Plus the U.S. Supreme Court doesn't seem convinced the president can sack a member of the Federal Reserve.

It really does hit at the core potentially of how arguably the most important central bank in the world is going to be able to retain its independence. I'm Mark Filipino and here's the news you need to start your day.

US President Donald Trump is dropping his tariff threat against European countries who opposed his plan to take control of Greenland. Those tariffs would have kicked in on February first. Instead, Trump told CNBC that he has a quote concept of a deal that involves mineral rights for the U.S. and the Arctic Islands.

U.S. stocks rose on the announcement. It came after an eventful day at the World Economic Forum in Davos. Here to talk about that is the FT's US news editor, Derek Brouer. Hi, Derek. Hi, Mark. So Derek, the past few days Trump has been threatening to tariff NATO allies if they don't get on board with America's plan to own Greenland. How significant is it that he's gone back on that? Well I think it's such a head spinning

moment n for foreign leaders. This is kind of a classic of the Donald Trump genre. He says something extreme, people get very upset in this case because it seemed like he was willing to uh use force even to take the territory of another NATO country and then he claims a deal. A day before that Mark Carney had talked of the rupture Not a transition in his words that the international order was going through.

Over the past two decades, a series of crises in finance, health, energy, and geopolitics have laid bare the risks of extreme global integration. But more recently. Great powers have begun using economic integration as weapons. And it was uh maybe even entirely due to the behavior of the US as the hedgemen and these global powers who are using tariffs.

and globalization and interconnectedness and supply chains as ways to i enforce policy and enforce the whims on the weaker nations. So what I think foreign leaders are finding is that Donald Trump and his policy especially with regards to the rest of the world, can be so volatile, so unpredictable, that foreign leaders really cannot know which way to turn when it comes to um relying on him or what he says from one week to another.

More broadly at Davos, Trump and other administration officials have had some tough talk for America's allies, but global leaders and even some noteworthy US business leaders seem to be protesting that in some way. Yeah. Scott Besson turned up and was pretty blunt about US Treasury Secretary. US Treasury Secretary, that's right, and was pretty blunt in his view that the European Union shouldn't stand up to Trump or retaliate.

uh to Trump's threats to hit more European countries and the UK with sanctions because of their stance on Denmark. and said, I think in a kind of mocking way, that the EU really didn't have any any power in this relationship and so she just stepped down. And then Howard Lutnick, the US Commerce Secretary, had some blunt words about how the Trump administration perceives Europe and its weakness. Lutnik was actually heckled.

at one of the events he attended by some of the people in the room, Christine Lagarde, the president of the European Central Bank, walked out. So I mean I think the reception for some of these lieutenants of Donald Trump was icy, let's put it that way. Derek, the world has been watching this year's event in Davos because Trump is there. I i is his decision to drop the tariff threat the biggest news to come out of the gathering? Well let's see. It's not quite finished yet.

Greenland might not be as settled as Donald Trump claims it yet, so we'll see see over the coming days. Other than that, Donald Trump will point to the um Board of Peace that he's establishing today. The Board of Peace is his effort to create something that rivals the UN with expansive authority to try and settle crises around the world.

In principle it seem seems like a very benign idea from the President of the United States. In reality, so far the only countries that have been willing to sign up are hardly the representatives of Western values that I think many People would once have associated with this kind of international body, at least one created by the US. That's the FT's Derek Brouwer in New York. Thanks, Derek. Thanks, Mark.

There's another delay in ratifying the EU's trade deal with the South American countries that make up Mercosur. These countries include Brazil, Argentina, Uruguay, and Paraguay. The Mercosur deal would remove almost all tariffs. European farmers have opposed the deal for a long time. They argue they can't compete with cheap imports made under lower standards.

EU lawmakers voted to postpone the ratification by seeking a legal opinion about the agreement from the bloc's highest court. That could take up to two years. Some European lawmakers claim that those who voted for the court referral just wanted to sabotage the deal. The move drags out an already extensive process to get the agreement through. It took 25 years to negotiate, but the European Commission, the bloc's executive branch, could provisionally apply the deal while the court deliberates.

The U.S. Supreme Court seems skeptical of President Trump's ability to fire a member of the Federal Reserve Board. The court yesterday heard oral arguments about Trump's attempt to fire Fed Governor Lisa Cook in August. It's the first time a U.S. president has tried to remove a member of the central bank, and it puts the issue of Fed independence in the hands of America's highest court.

Here to talk about this is the FT's US legal and enforcement correspondent, Stefania Palma. Hi Stefania. Hi, Mark. All right, so remind me, what are the basics of this case? So all of this starts from Trump's attempt to fire uh Cook last year over accusations that she committed mortgage fraud, uh which she denies. Cook basically challenged this attempt in court. And we had lower courts who actually blocked uh the firing while litigation continues.

And at that point the administration uh appealed against these decisions with the Supreme Court and that is why uh we had these oral arguments this week. Stefania, I want to play a part from yesterday's oral arguments that Justice Sonia Sotomayor said regarding Fed independence and and Trump's push to get the central bank to lower interest rates. The president, by your own admission. cannot fire someone for disagreeing with his policy choices. You've conceded that. Correct? Correct.

All right. Sudamor was talking to Solicitor General John Sauer. Um she's one of the more liberal judges on the bench, but many of the justices seemed unconvinced of the argument he was making. How come? Yeah, I mean that was I think one of the most interesting takeaways from the earlier arguments, right? We had a mix of justices, both conservatives and uh liberals challenging uh Sour's arguments. We had Justice Samuel Alito, who is arguably one of the most staunch conservatives on the bench.

uh raise the question as to why the executive branch but also the lower court were sort of pushing to uh deal with this matter in such a hurried manner. But also uh Justice Brett Kamanna, another conservative, who had some pretty sort of spicy quotes around essentially how you know, uh if we followed the government's argument that, you know, no judicial review or sort of process is needed when firing sort of a Fed governor.

I mean that would weaken, if not shatter, the independence of the Federal Reserve that we just discussed. He also sort of launched a pretty strong sort of warning saying, you know, once these tools are unleashed, y there is potentially a world where sort of presidents may feel incentivized to find ways to then fire any and all sort of Fed official that they themselves didn't appoint. Now Stefania, we should mention that. Fed Chair Jay Powell attended the hearing.

And the Department of Justice is investigating him over the two and a half billion dollar renovation of the Fed's Washington headquarters. U.S. Treasury Secretary Scott Besson even commented on Powell's presence at this hearing from Davos. I am not sure why Chair Powell would go and support Governor Cook, when the Fed has not undertaken an examination of whether she did in fact commit mortgage fraud. Stefania, is it unusual that Powell was there?

I mean I think it's not necessarily usual, but I think all kind of bets are off with such high stakes cases. I also found it quite interesting that Besson made this comment given Bessant himself actually went. to a Supreme Court hearing not too long ago uh during arguments for a case that challenged

Trump's tariff policy. So he himself made a similar move. It all points to how truly sort of fundamental a case like this is. It really does hit at the core potentially of w how arguably the most important central bank in the world is going to be able to retain its independence with obvious huge knock on effects uh for the market in the US but also more globally. I'm curious, Stefania, what should we be taking away from the fact that the justices seemed so skeptical of this case?

I think it's fair to say there's a clear concern around sort of potentially denting the independence of the Fed. Um, but more broadly, I think the it felt like the justices were really kind of wrestling with kind of how broad to go when they do put together an opinion. I think they were really were going into s kind of the nitty gritty of what some kind of judicial review. for a move like this.

would look like. And I think it's quite complex for them because as you pointed out, this has never happened before. So they don't have a lot of precedents to go by in terms of how do you handle uh situation where President is trying to remove uh a Fed government. That's the FTs Stefania Palmer in Washington. Thanks so much, Stefania. Thank you.

Before we go, Berkshire Hathaway seems to have lost its appetite for Kraft Heinz. It's thinking about selling its nearly$8 billion stake in the American food company. The news sent Kraft Heinz's share price down almost 6% yesterday. Now you know Kraft Heinz is the company that makes everything you'd see at a barbecue. Ketchup, mac and cheese, baked beans, all that good stuff.

Heinz and Kraft merged in 2015, but the company's share price has tanked since then and it's now splitting back into two. Berkshire declined to comment. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News briefing. Check back tomorrow for the latest business news. Thinking long-term about your investment career, hear stories, advice, from seasoned leaders at Capital Group on the Capital Ideas podcast.

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