In the courtroom of the U.S. Supreme Court, the warning from conservative Justice Brett Kavanaugh echoed within the chamber—if the president is allowed to dismiss Federal Reserve governors at will, it would "weaken or even shatter" the independence of the Federal Reserve.
Since last August, the U.S. dollar index has fallen by more than 2%, while spot gold has risen by over 17% during the same period, reflecting the market's direct response to concerns about the independence of the Federal Reserve.
On January 21, 2026, local time, the U.S. Supreme Court held oral arguments in the case of "Trump v. Cook." This legal showdown not only determines the fate of Governor Lisa Cook but could also reshape the foundations of the global financial system.
I. Core of the Case: The Clash of Three Major Legal Controversies
● The case originated on August 25, 2025, when Trump announced the dismissal of Cook from her position as a Federal Reserve governor, citing alleged false statements in her mortgage application. Cook promptly filed a lawsuit and obtained a preliminary injunction from the court, preventing her removal.
● The core points of contention in the Supreme Court's review focus on three aspects: the boundaries of the president's authority to dismiss Federal Reserve governors, the statutory interpretation of "good cause," and whether the dismissal procedure meets due process requirements.
● According to the Federal Reserve Act, Federal Reserve governors serve a 14-year term unless the president has "good cause" for dismissal. However, the law has never clearly defined what constitutes "good cause." Trump's side argues that the president should have broad discretion, while Cook insists that the process was unfair and the allegations were unrelated to her duties.
II. Courtroom Dynamics: Justices' Concerns and Warnings
The hearing lasted nearly two hours, with justices from different ideological backgrounds unusually expressing deep skepticism towards the government's arguments.
● Conservative Justice Brett Kavanaugh, appointed by Trump, stated bluntly that adopting the government's position would "weaken (if not shatter) the independence of the Federal Reserve." He warned that once this power is unleashed, it would be used repeatedly by both sides.
● Another conservative Justice, Samuel Alito, questioned the rushed nature of the proceedings. Liberal Justice Sonia Sotomayor pointed out that in the 112 years since the Federal Reserve's establishment, no governor has ever been dismissed, and this crisis stems from "the president's actions."
● Justice Amy Coney Barrett pressed the government lawyer: "If you are unafraid of the hearing, why not allocate resources to hold a hearing?"
III. Deeper Game: A Battle Beyond Personnel Appointments
● Behind this case is a long-standing struggle between the White House and the Federal Reserve over the dominance of monetary policy. Since Trump began his second term as president in January 2025, he has repeatedly urged the Federal Reserve to significantly lower interest rates to reduce government borrowing costs.
● Analysts believe that Trump is attempting to reshape the structure of the Federal Reserve Board through personnel changes. Currently, two of the seven governors were nominated during Trump's first term. If Cook is dismissed, Trump would have the opportunity to nominate a fourth governor, thereby gaining a majority on the board and fundamentally altering the direction of monetary policy.
● More notably, Federal Reserve Chairman Jerome Powell is simultaneously facing a criminal investigation related to the renovation of the Federal Reserve headquarters and congressional testimony. Powell himself has pointed out that the investigation is a political tool to pressure the Federal Reserve into lowering interest rates.
IV. Market Reaction: A Confidence Crisis is Brewing
This legal battle has sparked widespread concern in financial markets regarding the independence of the Federal Reserve. The market reactions are specifically manifested as follows:
Market Indicators
Specific Performance
Reflected Market Sentiment
U.S. Dollar Index
Cumulative decline of over 2% since August 2025
Concerns about the dollar's status as a reserve currency
Gold Prices
Spot gold has risen over 17% during the same period
Significant increase in risk-averse sentiment
Market Commentary
Described as "banana republic behavior"
Serious doubts about institutional credibility
UBS warned in a report that if the Supreme Court supports Trump, the data-driven logic of monetary policy could collapse, replaced by political directives, leading to a structural reassessment of the pricing systems for the dollar, U.S. Treasuries, and U.S. stocks.
V. Future Direction: Historic Ruling and Global Impact
The Supreme Court is expected to make a final ruling by July 2026. However, the court may choose to issue a narrow procedural ruling, such as determining that the dismissal procedure was insufficient, without addressing the core constitutional issues.
● On October 1, 2025, the Supreme Court issued a temporary ruling allowing Cook to remain in her position during the case's proceedings. This ruling is seen as "temporarily building a firewall for the Federal Reserve's independent decision-making."
● Notably, the Supreme Court previously left an exception for the Federal Reserve in last year's "Trump v. Wilcox" case, describing it as a "structurally unique, quasi-private entity," distinct from other executive agencies. Whether this ruling will reaffirm that positioning is of great interest.
● Global central banks and financial markets are closely monitoring the progress of this case. A member of the European Central Bank has stated that, given the new risks posed by the U.S. government's pressure on the Federal Reserve, the ECB should remain vigilant. Harvard professor Kenneth Rogoff warned at the Davos Forum that such pressure is "banana republic behavior."
The market is holding its breath, waiting to see how the scales of history will tip—whether to uphold the century-old tradition of central bank independence or to open a new chapter of political intervention in monetary policy. In front of the Federal Reserve building, that structure symbolizing financial stability, the ultimate game over who ultimately holds the power to decide interest rates is about to reach its conclusion.
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