The watershed moment for the independence of the Federal Reserve! Tomorrow, the U.S. Supreme Court will hear the "Trump v. Cook" case

This Tuesday, the U.S. Supreme Court will hear Trump v. Cook. This is not merely a personnel dispute; it is shaping up to be a “judgment day” for the Federal Reserve as an independent central bank.

According to information from Zhuifeng Trading Desk, UBS stated bluntly in a report on the 16th that the case is existential for the Fed’s independence. If the Court rules that the White House may bypass the protections of the Federal Reserve Act and remove Governor Lisa Cook “for cause,” the legal door to dismissing Chair Jerome Powell would be kicked wide open.

Such a ruling would risk the immediate collapse of data-driven monetary policymaking, replacing it with politically directed rate cuts. Once this line of defense is breached, the pricing frameworks for the U.S. dollar, Treasuries, and U.S. equities would face a long-term structural repricing. UBS warns that 2026 is destined to be turbulent—and this week is the epicenter of the shock.

The “Judgment Day” That Could Decide the Fed’s Fate

This week’s Supreme Court hearing (Docket No. 25A312) will determine whether Lisa Cook can continue serving as a Federal Reserve governor.

Previously, the Trump administration accused Cook of alleged fraud in a mortgage application—a claim raised by Federal Housing Finance Agency Director William Pulte—and announced her dismissal via social media. Cook immediately filed suit and obtained a preliminary injunction preventing her removal.

UBS notes that the case directly challenges the “for cause” removal protections embedded in the Federal Reserve Act, which limit a president’s ability to dismiss Fed governors.

The White House argues that the president retains broad authority to remove officials, even when statutory removal protections exist, provided there are administrative grounds.

As the American Bar Association has observed, if the president’s reasoning prevails, it would “effectively hollow out” the Fed’s independence. If a governor can be sidelined through administrative allegations and barred from voting, then any official whose decisions contradict presidential preferences could, in the future, be removed under pretext.

Can the Supreme Court’s “Special Exemption” for the Fed Hold?

UBS emphasizes that while the Supreme Court has previously weakened protections for independent agencies, the Federal Reserve may still be an exception.

In last year’s Trump v. Wilcox case, the Court upheld the president’s authority to dismiss members of the National Labor Relations Board (NLRB). However, Chief Justice John Roberts explicitly carved out a “firewall” for the Federal Reserve in the majority opinion, stating that the Fed is a “structurally unique, quasi-private entity” distinct from other executive agencies. Justice Elena Kagan, in her dissent, also underscored that the Court had no intention of jeopardizing the Fed.

This week’s hearing will test whether that firewall still stands. If the Court fails to reaffirm that the Fed is different, markets must prepare for a future in which monetary policy falls fully under executive control.

DOJ Subpoenas and the Fed Headquarters “Renovation Scandal”

Beyond the courtroom battle, tensions between the U.S. administration and the Federal Reserve have escalated into an open confrontation.

The Department of Justice has issued grand jury subpoenas to the Fed and to Powell himself, investigating whether Powell misled Congress regarding the management and cost overruns of the Fed’s headquarters renovation project. UBS views this as a potential prelude to an attempt to remove Powell.

Powell’s term as Fed chair ends on May 15, 2026, but his term as a governor runs through January 31, 2028.

Analysts note that if the administration presses criminal charges, and if Senate Republicans—such as Senator Thom Tillis, who has vowed to block nominations—refuse to advance new appointments, the FOMC could choose to keep Powell on as a governor after his chairmanship ends, and may even re-elect him as FOMC chair, using him as a bulwark against Trump’s push for aggressive rate cuts.

UBS warns that investors are entering a “bumpy 2026.” If this week’s Cook ruling goes against the Fed, or if Powell is pushed further into a corner, market confidence in Federal Reserve independence could collapse. This week is not merely a legal battle—it is a stress test of the foundational logic underpinning dollar-denominated assets. The market’s directional response has already been clear: the dollar down, equities down, Treasuries down.