Fed on Trial: Supreme Court Weighs Trump’s Bid to Fire Lisa Cook in a Historic Test of Central Bank Independence

The U.S. Supreme Court is about to step into territory it has avoided for more than a century — and the implications could ripple through financial markets for years.

On Wednesday, the justices will hear oral arguments over President Donald Trump’s attempt to fire Federal Reserve Governor Lisa Cook, a case that doesn’t just affect one official, but challenges the very independence of the central bank.

At stake is a foundational question: Can a president remove a Fed governor at will, or is the central bank truly insulated from political pressure?

In August, Trump attempted to remove Cook through a social media post, accusing her of mortgage fraud. Cook — the first Black woman to serve as a Fed governor and a Biden appointee — has denied the allegations and swiftly sued the president.

Her argument rests on a key legal safeguard: the Federal Reserve Act, which allows governors to be removed only “for cause.”

Cook’s legal team says Trump’s move crosses a dangerous line.

Without limits, they argue, any president could fire any Fed governor on flimsy accusations, undermining the institution’s ability to set policy independently.

For decades, presidents of both parties have largely respected the Fed’s autonomy — even when they disagreed with its decisions.

That tradition matters because:

Notably, no president has ever fired a Fed governor since the institution was created in 1913.

This case could change that.

The Supreme Court’s recent actions have added to the uncertainty.

In May, the justices suggested that Fed officials — including Chair Jerome Powell — enjoy special protections, calling the Fed a “uniquely structured, quasi-private entity” with a distinct historical role.

But just weeks ago, the court heard arguments in a separate case involving Trump’s attempt to remove FTC Commissioner Rebecca Slaughter, signaling it may strike down laws that limit presidential power over independent agencies.

If the court treats the Fed like other regulators, the consequences could be profound.

The heart of the case lies in Section 10 of the Federal Reserve Act, which states that governors serve 14-year terms unless removed “for cause.”

But the law doesn’t define the phrase.

Courts have traditionally interpreted “for cause” to mean:

A federal judge already ruled that Trump’s mortgage fraud allegations don’t meet that standard. The appeals court agreed. Now, the Supreme Court must decide whether to pause that ruling — which would allow Cook’s firing to take effect — while the broader lawsuit continues.

In a rare move, Fed Chair Jerome Powell plans to attend the arguments, highlighting how consequential the case has become.

Every Fed official has backed Cook, joined by scores of former Fed chairs and leading economists, all warning that weakening the Fed’s independence could destabilize markets.

Cook’s lawyers argue the accusations are merely a pretext, part of Trump’s broader campaign to pressure the Fed into cutting rates faster.

That pressure intensified last year, with Trump repeatedly attacking Powell and — earlier this month — the Justice Department opening a criminal investigation into Powell over testimony related to renovations of the Fed’s headquarters.

The timing couldn’t be more sensitive.

The Supreme Court hearing comes one week before the Fed’s next policy meeting on Jan. 28, where rates are expected to remain steady after last fall’s cuts. Cook is expected to participate — at least for now.

A ruling that weakens Fed independence could:

What happens Wednesday may not settle the entire case — but it will signal where the court stands.

If the justices side with Trump, the Fed could become far more vulnerable to political influence. If they side with Cook, they reaffirm a century-old principle: that monetary policy must remain insulated from politics.

Either way, this is no ordinary legal dispute.
It’s a moment that could reset precedent — and redefine the future of US economic governance.