Federal Reserve Chair Jerome Powell is scheduled to attend a U.S. Supreme Court hearing on Wednesday regarding former President Donald Trump's attempt to remove Fed Governor Lisa Cook, according to informed sources. Powell's attendance carries significant weight, coming after his statement last week that the U.S. Department of Justice had served the Fed with a grand jury subpoena. Previously, Powell appeared reluctant to make any public comments that might provoke Trump. When questioned about the case during a press conference on December 10 last year, he declined to respond, stating, "We are not legal commentators, and the matter is being handled by the courts." Trump ordered Cook's removal in August of last year based on unsubstantiated mortgage fraud allegations. Cook has denied the charges and subsequently filed a lawsuit, obtaining a preliminary injunction from a court that blocked the dismissal. This ruling allows Cook to remain in her position, at least until the Supreme Court hears oral arguments and issues a decision this week. Fed observers and legal analysts suggest the outcome of this case will have profound implications for a U.S. President's power to dismiss Fed governors, thereby impacting the central bank's ability to set interest rates free from political interference. UBS noted in a January 16 report that the case is a critical test for the Fed's independence, directly challenging the protection in the Federal Reserve Act that governors can only be removed "for cause." The White House argues that the President holds broad authority to dismiss officials for administrative reasons, even with "statutory removal protection." However, as the American Bar Association has stated, if this logic prevails, it would "substantially hollow out" the Fed's independence. If Cook can be barred from voting due to administrative charges, any future official who votes against the President's wishes could potentially be removed under various pretexts. UBS stated that if the court's ruling allows the White House to bypass the Federal Reserve Act and remove Cook "for cause," the legal door would be kicked wide open for Powell's own dismissal. This would mean the logic of data-dependent monetary policy could collapse instantly, replaced by politically-driven orders for interest rate cuts. Once this line of defense is breached, the pricing systems for the U.S. dollar, Treasury bonds, and stocks would face long-term structural reassessment. UBS warned that markets are destined for a "bumpy" 2026, with this week being the epicenter. UBS emphasized that while the Supreme Court has precedent in weakening protections for independent agencies, the Fed might be a special case. In last year's "Trump vs. Wilcox" case, the court supported the President's dismissal of a National Labor Relations Board (NLRB) member. However, Chief Justice Roberts specifically left a "firewall" for the Fed in the majority opinion. The opinion clearly stated that the Fed is a "uniquely structured quasi-private entity," distinct from other executive agencies. Justice Kagan also affirmed this point in her dissent, suggesting the court had no intention of endangering the Fed. Wednesday's hearing will test whether this "firewall" remains robust. If the court fails to reaffirm that the "Fed is different," then markets must prepare for the comprehensive takeover of monetary policy by executive power. The Fed's independence faces a severe test beyond the attempt to remove Cook, as the Trump administration has also initiated a criminal investigation into Powell himself. Last week, according to informed officials, the U.S. Attorney's Office for the District of Columbia launched a criminal investigation into Powell concerning the Fed's renovation of its Washington headquarters and whether Powell lied to Congress about the project's scope. Informed officials revealed that the investigation includes an analysis of Powell's public statements and a review of expenditure records, and was approved by D.C. U.S. Attorney Janina Piro in November of last year. Subsequently, Powell confirmed that the Justice Department served a subpoena on the Fed on January 9, threatening criminal charges related to Powell's testimony before the Senate Banking Committee, which partly concerned a multi-year, historic renovation of the Fed's office building. Powell stated that this new threat is not about the testimony from last June, nor specifically about the Fed building renovation, nor related to Congressional oversight functions, calling these mere pretexts. The threat of criminal charges, he suggested, is fundamentally because the Fed sets interest rates based on its best assessment of the public interest, rather than following the preferences of President Trump. Powell pointed out that this is about whether the Fed can continue to set interest rates based on evidence and economic conditions—or whether monetary policy will be swayed by political pressure or coercion. Since assuming the presidency for the second time in January of last year, Trump has consistently urged the Fed to cut interest rates, hoping to stimulate the economy and reduce government borrowing costs. Dissatisfied with the Fed's reluctance to cut rates more aggressively, Trump has repeatedly called for Powell's resignation. Now, this unprecedented legal threat from the Trump administration has heightened concerns that political pressure could undermine the Fed's independence and raised alarms about long-term risks—namely, that monetary policy might no longer be centered on inflation and growth targets but instead be subject to political demands. As a pillar of the global financial system, the Fed and the U.S. dollar play a crucial anchoring role, meaning that both verbal pressure and legal threats have global repercussions. Notably, some analysts believe that if the Trump administration persists with the criminal investigation into Powell, and Senate Republicans (such as Senator Thom Tillis, who has stated he would block a nomination) refuse to advance a new nominee, the Federal Open Market Committee (FOMC) might well choose to allow Powell to remain as a governor after his term as Chair ends, and potentially even re-elect him as FOMC Chair, as a barrier against Trump's push for aggressive rate cuts.
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