Supreme Court Signals Fed Independence Will Survive Trump's Challenge to Governor Lisa Cook

The fate of Federal Reserve independence hung in the balance Wednesday as the Supreme Court heard oral arguments in Trump v. Cook, a case that has rattled financial markets and drawn unprecedented support for a Fed governor from three former central bank chairs.

A Historic Day for Central Bank Independence

No president has fired a sitting Federal Reserve governor in the 112-year history of the central bank, which was deliberately structured to be independent of day-to-day political pressures. That history appeared to weigh heavily on the justices during Wednesday's two-hour session, as both liberal and conservative members of the court expressed concerns about the implications of allowing the removal to proceed.

Justice Brett Kavanaugh, a Trump appointee whose vote could prove decisive, offered the most pointed criticism of the administration's position. "This would weaken, if not shatter, the independence of the Federal Reserve," Kavanaugh said, questioning whether presidents could fire Fed governors for "trivial or inconsequential or old allegations that are very difficult to disprove."

The Allegations Against Cook

The case stems from allegations that Cook claimed two properties—one in Michigan and another in Georgia—as "primary residences" in June and July 2021, before she joined the Fed board. Such claims can potentially lead to lower mortgage rates and smaller down payments than if one property were declared a rental or second home.

Cook has strongly denied any wrongdoing and has not been charged with any crime. Her attorneys argued during the hearing that the allegations represent exactly the type of unproven accusations that could be wielded against any independent official a president wishes to remove.

Conservative Justices Signal Skepticism

Justice Amy Coney Barrett, another Trump appointee, appeared similarly unconvinced by the administration's arguments. She questioned why the president couldn't simply give Cook an opportunity to respond to the allegations before taking action.

"Sit down across the table in the Roosevelt Room where the president provides Governor Cook with the evidence and waits to hear what her response is," Barrett suggested. "It just wouldn't be that big of a deal, it seems."

Barrett also acknowledged the broader economic stakes, noting that amicus briefs from economists warned that firing Cook "can trigger a recession." She asked the government's attorney directly: "How should we think about the public interest in a case like this?"

Unprecedented Support for Cook

The hearing drew an extraordinary show of support from the financial establishment. All three living former Federal Reserve chairs—Alan Greenspan, Ben Bernanke, and Janet Yellen—signed a legal brief arguing against Cook's removal. They were joined by former Treasury secretaries and chairs of the White House Council of Economic Advisers from both parties.

Bernanke himself attended Wednesday's arguments, his presence underscoring the gravity of the moment for the institution he once led.

Broader Implications for Powell

While the case specifically concerns Cook's position, its implications extend to Fed Chair Jerome Powell and the entire Federal Reserve Board. The Justice Department has opened a separate criminal investigation of Powell and has served the central bank with subpoenas, actions that have intensified concerns about the administration's intentions toward monetary policy independence.

Powell's term as Fed chair expires in May, and President Trump is expected to announce his nominee for the position. Kevin Hassett, the National Economic Council Director, is viewed as the frontrunner in prediction markets, though former Fed Governor Kevin Warsh has also emerged as a leading candidate.

What Comes Next

A decision in the case is expected by early summer, likely in June when the court traditionally issues its most consequential rulings. In the meantime, Cook will remain on the Fed Board, and the Federal Open Market Committee will hold its next interest rate decision on January 28.

Financial markets, which plunged on Tuesday amid escalating tensions over Greenland and Fed independence, recovered sharply on Wednesday as Trump's Davos remarks and the Supreme Court proceedings suggested both crises might be resolved without the worst-case scenarios investors had feared.

The S&P 500 rose 1.4%, the Dow Jones Industrial Average gained 1.4%, and the Nasdaq Composite advanced 1.6% as technology shares led the recovery.