Facing a criminal investigation subpoena and threats of presidential removal, Federal Reserve Chairman Jerome Powell ascends the steps of the Supreme Court, with over a century of Federal Reserve independence tradition behind him and a legal battle determining the fate of the U.S. central bank ahead.
On January 20, 2026, the U.S. Supreme Court will hold oral arguments in the case of former President Trump’s attempt to remove Federal Reserve Governor Lisa Cook.
Federal Reserve Chairman Jerome Powell plans to attend the hearing in person, while he himself is under criminal investigation due to the renovation project at the Federal Reserve headquarters. This legal battle is described as “the most significant legal test of Federal Reserve independence in over a century.”
1. Background of the Incident
The controversy began on August 25, 2025, when Trump issued a public letter announcing the “immediate removal” of Federal Reserve Governor Lisa Cook.
● The letter accused Cook of issues in mortgage applications, claiming she had repeatedly declared different residences as her “primary residence” in Michigan and Georgia to enjoy favorable loan conditions.
● Cook quickly responded, stating that “there is no legal reason” for her dismissal and that she would continue to fulfill her duties. She denied any wrongdoing and has not faced any criminal charges.
In response to Trump’s removal decision, Cook filed a lawsuit in federal court in Washington, D.C., attempting to block her dismissal.
● On September 9, 2025, a district court judge ruled to prohibit Trump from removing her while the lawsuit was ongoing. Shortly thereafter, a federal appeals court upheld this injunction.
● On October 1, 2025, the U.S. Supreme Court ruled to temporarily maintain Cook’s position and scheduled oral arguments for January 2026.
2. The Key Role of the Supreme Court
● The U.S. Department of Justice, in documents submitted to the Supreme Court, stated that the lower court's order prohibiting Cook's removal is “another case of judicial improper interference with the president's removal power.”
● The Supreme Court will hear oral arguments in this case on January 21, 2026. Analysts point out that the crux of the case is whether Trump can remove a Federal Reserve governor based on his interpretation of “just cause.”
● Jon Faust, an economics professor at Johns Hopkins University and a former senior advisor to Powell and Yellen, expressed concern that even if Cook retains her position, the ruling could still weaken the Federal Reserve's shield against political pressure.
3. Powell's Dilemma and Counterattack
As the Cook case unfolds, Powell himself is under pressure. The U.S. Department of Justice served a subpoena to the Federal Reserve on September 9, 2025, threatening to file criminal charges regarding his testimony before the Senate Banking Committee in June 2025.
● The investigation primarily focuses on cost overruns in the Federal Reserve's office building renovation project, which saw its budget increase from an initial $1.9 billion to nearly $2.5 billion.
● In a public statement on January 11, 2026, Powell stated that the criminal investigation is intended to pressure the Federal Reserve because it has not quickly lowered interest rates as Trump requested.
White House National Economic Council Director Kevin Hassett downplayed the investigation against Powell, stating he expects the inquiry “will not yield substantial results.”
● Hassett expressed confidence that Powell's previous testimony regarding the Federal Reserve's office renovation project was truthful. However, he also claimed that if he were the Federal Reserve Chairman, he would “insist on transparency.”
● Notably, Hassett had been predicted to be one of the top contenders to succeed Powell. However, during a speech at the White House on January 16, 2026, Trump hinted that he preferred to keep Hassett in his current position rather than nominate him as the next Federal Reserve Chairman.
4. Trump's True Intentions
Since returning to the White House in early 2025, Trump has been urging the Federal Reserve to significantly lower interest rates, hoping to boost the economy and reduce government debt costs.
● Analysts believe that the attack on Cook represents a significant escalation in Trump's intervention in Federal Reserve policy. If Trump successfully removes Cook, he could appoint someone else to fill her vacancy, giving his appointee a majority on the Federal Reserve Board.
● Former New York Fed President Bill Dudley warned that the market is underestimating the threat posed by Trump’s move to remove Federal Reserve Governor Cook. “Even if the likelihood of Trump controlling the Federal Reserve is minimal, the effort itself is destructive. And if successful, the consequences could be dire.”
5. Institutional Design of Federal Reserve Independence
The original intention behind the design of the Federal Reserve was to ensure the stability of the financial system and to safeguard the professionalism and independence of monetary policy.
● According to the U.S. Federal Reserve Act, Federal Reserve governors are independent officials serving 14-year terms and can only be removed for “just cause,” such as serious misconduct, illegal activity, or moral turpitude, and must go through legal procedures.
● Hu Jie, a professor at Shanghai Jiao Tong University’s Shanghai Advanced Institute of Finance, stated that the independence of the Federal Reserve is protected by U.S. law and widely recognized by various sectors of society and regulatory agencies. Any attempt to turn it into an administrative appendage could trigger market turmoil.
6. Global Market Reactions
● This removal controversy has caused turbulence in financial markets. Following the news, the yen rose nearly 0.5% against the dollar amid risk-averse sentiment.
● The decline in U.S. 30-year Treasury bonds widened, with yields rising 5 basis points to 4.94%. Concerns that the Federal Reserve's loss of some independence could lead to accelerated inflation caused 30-year Treasury yields to approach 5%.
● Robert Savage, head of market strategy and insights at BNY Mellon, stated that removing Cook is “a historic test of presidential power in the United States,” and the loss of the Federal Reserve's independence credibility will pose long-term risks to U.S. bonds and the dollar.
Analysts believe that if Trump gains veto power and the ability to select regional Federal Reserve presidents through the Federal Reserve Board, the boards of various Federal Reserves will face tricky political issues.
● Bai Xue, senior deputy director of the research and development department at Dongfang Jincheng, believes that Trump’s actions may influence the future monetary policy and institutional direction of the Federal Reserve, leading to risks of politicization and short-termism in future policy decisions.
● From a global perspective, the weakening of the Federal Reserve's independence could undermine the dollar's status as a reserve currency and pose challenges to global financial stability.
Outside the Supreme Court, reporters await Powell's appearance. The term of this Federal Reserve Chairman will end in May 2026, and his nominated successor has yet to be clarified.
Regardless of the final ruling, this case has already left an indelible mark on the chronicle of U.S. monetary policy. The investigation by the U.S. Attorney's Office for the District of Columbia is ongoing, and the renovation of the Federal Reserve headquarters seems to metaphorically suggest the “structural transformation” facing the U.S. central bank itself.
Financial markets hold their breath, not only focusing on the direction of interest rates but also on a fundamental question: the future of the Federal Reserve—will it continue as an independent technocratic institution, or will it gradually take on the characteristics of a political appendage?
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