This Tuesday, the U.S. Supreme Court will hear the case of "Trump vs. Cook," a proceeding that transcends a mere personnel dispute and represents a "judgment day" for the Federal Reserve's future as an independent central bank.
According to information from Zhui Feng Trading Desk, UBS stated bluntly in a report on the 16th that this trial concerns the very survival of the Fed's independence. If the court rules that the White House can "for cause" bypass the Federal Reserve Act to remove Governor Lisa Cook, the legal floodgates for Powell's dismissal would be thrown wide open.
This implies that the data-driven logic of monetary policy could instantly collapse, replaced by politically-motivated interest rate cut directives. Once this line of defense is breached, the pricing systems for the U.S. dollar, Treasury bonds, and stocks would face a long-term structural revaluation. UBS warns that the market is destined for a "bumpy" 2026, and this week is the epicenter of the tremor.
The Supreme Court's hearing this week (Docket No. 25A312) will determine whether Lisa Cook can continue to serve as a Federal Reserve Governor.
Previously, the Trump administration accused Cook of alleged fraud in mortgage applications (raised by FHFA Director William Pulte) and announced her removal via social media. Cook subsequently sued and obtained a preliminary injunction from a court, blocking the removal.
UBS noted in its report that this case directly challenges the protective clause in the Federal Reserve Act stating that governors can only be removed "for cause."
The White House argues that the President possesses broad powers, enabling the dismissal of officials for administrative reasons even in the presence of "statutory removal protection."
As the American Bar Association has stated, if the President's logic prevails, it would "substantially hollow out" the Fed's independence. If Cook can be prevented from voting due to administrative charges, then any official who votes against the President's wishes in the future could potentially be removed under various pretexts.
UBS emphasized that while the Supreme Court has precedent in weakening protections for independent agencies, the Federal Reserve might be a special case.
In last year's "Trump vs. Wilcox" case, the court supported the President's authority to dismiss a member of the National Labor Relations Board (NLRB). However, Chief Justice Roberts specifically left a "firewall" for the Fed in the majority opinion, which explicitly stated that the Fed is a "structurally unique quasi-private entity," different from other executive agencies. Justice Kagan also acknowledged this point in her dissent, suggesting the court had no intention of endangering the Fed.
This week's hearing will test whether this "firewall" remains robust. If the court fails to reaffirm that the Fed is "different," markets must prepare for the full takeover of monetary policy by executive power.
Beyond the courtroom battle, tensions between the U.S. executive branch and the Fed have escalated into an open confrontation.
The Department of Justice has previously issued grand jury subpoenas to the Fed and Powell, investigating whether he misled Congress in testimony related to the management of the Fed's office renovation project. UBS analysis suggests this could be a prelude to the White House seeking Powell's removal. Powell's term as Chair ends on May 15, 2026, but his term as a Governor lasts until January 31, 2028.
Analysts believe that if the administration pursues criminal charges and Senate Republicans (such as Senator Thom Tillis, who has vowed to block nominations) refuse to advance a new nominee, the FOMC would likely opt for Powell to remain as a Governor after his chairmanship ends, potentially even being re-elected as FOMC Chair, serving as a barrier against Trump's aggressive push for rate cuts.
UBS warns that investors are heading into a "bumpy 2026." If this week's ruling in the Cook case is unfavorable, or if Powell is further cornered, market faith in the Fed's independence will crumble. This week is not just a legal contest; it is a stress test on the fundamental logic underpinning U.S. dollar assets. The market's reaction direction is already clear—a decline in the dollar, U.S. stocks, and Treasury bonds.
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