The U.S. Supreme Court is scheduled to deliberate on January 21st on former President Trump's move to dismiss Federal Reserve Governor Lisa Cook over mortgage fraud allegations, which Cook has denied.
Strategists at Wells Fargo have indicated that a Supreme Court ruling permitting former President Trump to dismiss Fed Governor Lisa Cook would provoke a market reaction that "far exceeds what has occurred over the past 24 hours."
A team led by Michael Schumacher wrote in a report, "We worry that one of these moves against Fed independence will be the straw that breaks the camel's back. Markets are already on alert but seem to be waiting for tangible action. A Supreme Court ruling that the Trump administration can dismiss Lisa Cook would qualify as tangible action."
The report states, "The Lisa Cook case is a pivotal event for the coming months, as it will significantly influence the extent to which the executive branch can arbitrarily dismiss Federal Reserve governors."
Under such a scenario, the team anticipates the following: Long-term breakeven inflation rates would rise by "perhaps 10-20 basis points"; The market would price in an additional 10-20 basis points of Federal Reserve monetary easing for the second half of 2026; The 10-year U.S. Treasury yield would increase by 5-10 basis points, while the 30-year yield would rise by 10-20 basis points, leading to a steepening yield curve; The 10-year German government bond yield would fall by approximately 5 basis points; Implied volatility for U.S. interest rates and some foreign exchange currency pairs would jump; The U.S. Dollar Index would decline by 1.5%-2% over "a day or two"; The price of gold would rise, but "likely by no more than 5%".
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