The Fed's biggest crisis in a century: Powell will go to court over independence

Federal Reserve Chair Powell will personally attend the U.S. Supreme Court hearing on January 21 to make a critical defense of the Fed’s independence. This lawsuit, involving Trump’s attempt to remove Fed Board member Cook, is seen as the most significant independence test the Federal Reserve has faced since its establishment. Ironically, Powell himself is under criminal investigation but must defend the central bank’s right to operate independently in court.

A Rare Supreme Court Battle

The core controversy of the ### case

Trump accused Fed Board member Cook of mortgage fraud (which occurred before her tenure at the Fed) and sought her removal. Cook denies misconduct and has filed a lawsuit. On the surface, this appears to be a personnel dispute, but in essence, it is a direct challenge to the independence of the Federal Reserve.

According to the latest reports, if Trump succeeds in removing Cook, he could gain control of the majority of the Fed’s seats, meaning the president could directly influence monetary policy decisions. This is why Powell is unusually appearing in person, which is extremely rare in Fed history.

Why this is a “Century-Old Battle”

The independence of the Federal Reserve holds a special status in the modern financial system—it is not just a structural design but also a fundamental market expectation of the central bank’s credibility. Based on relevant analyses, the legal issues involved in this case are unprecedented: the Supreme Court justices need to determine whether the president needs “just cause” to dismiss Fed governors.

Trump’s team argues that “just cause” is at the president’s discretion. If this standard is adopted, it would allow Fed governors to be dismissed almost at will. In contrast, Cook’s side advocates that dismissals must follow strict legal standards to protect the central bank’s decision-making independence.

Powell’s Dilemma and Resolve

Personal Pressure and Institutional Responsibility

Powell faces an especially complex situation. He is under criminal investigation, accused of insufficient rate cuts, which many analysts see as part of Trump’s pressure on the Fed. Against this backdrop, Powell’s appearance to defend Cook is essentially a fight for himself and the entire Fed system.

This scenario is extremely rare in Fed history. A central bank chairman under investigation must make a final stand for independence in the Supreme Court. It demonstrates Powell’s principled stance and also reflects the immense political pressure facing the Fed.

The Urgency of Time

Powell’s term ends on May 15, meaning the outcome of this lawsuit will directly impact the next chair’s position. If independence is not protected, the new chair will face greater risks of political interference.

The Market Has Already Given Its Answer

According to relevant reports, the market’s attitude toward Fed independence is already clear:

• U.S. stocks have stabilized amid the case, indicating capital markets support independent decision-making
• U.S. Treasury yields are flattening, reflecting confidence in policy stability
• Safe-haven assets (like gold) are performing strongly, showing investor concerns about uncertainty
• Risk assets such as Bitcoin and others are rallying alongside gold, indicating markets are seeking refuge amid macro uncertainties

The market is signaling: the greater the threat to central bank independence, the more investors favor assets that are less politically influenced.

Potential Impact on the Crypto Market

The outcome of this lawsuit will influence the future policy direction of the Fed and, consequently, the overall market liquidity environment:

• If Fed independence is preserved, policy decisions will be based on economic data rather than political pressure, providing more certainty to markets
• If independence is weakened, the president could exert more direct influence over monetary policy, increasing market uncertainty and driving funds toward safe-haven assets
• Regardless of the result, this case will reinforce “central bank independence” as a key pillar in market stability

For crypto investors, monitoring this case’s development is crucial. The Fed’s policy stance directly determines liquidity conditions, which are the core driver of risk asset performance.

Summary

The Fed is facing its greatest independence test since its founding. Powell will make the final legal defense of the central bank’s independence at the Supreme Court hearing on January 21. The key question is: will the justices protect the Fed from political interference, or will they provide a “clearing house” guide for the president?

The market has already shown support for central bank independence through action—capital is telling us that the Fed’s independent decision-making is more trustworthy than any political promises. Regardless of the lawsuit’s outcome, this battle will profoundly alter the relationship between the Fed and political forces, impacting future policy environments and asset performance.

Upcoming points to watch include: the Supreme Court’s ruling timeline, Trump’s nomination of the next Fed Chair (expected to be announced within this month), and the market’s re-pricing of policy stability.