Powell Warns Cook’s Supreme Court Case Poses Historic Threat to Federal Reserve

Federal Reserve Chair Jerome Powell has issued a stark warning about the potential consequences of the Supreme Court case involving Fed governor Lisa Cook, describing it as “perhaps the most important legal case in the Fed’s 113-year history.”

Speaking to reporters at the Federal Reserve, Powell emphasized the gravity of the situation, explaining his decision to attend the Supreme Court proceedings. “As I thought about it, it might have been hard to explain why I didn’t attend,” Powell said, noting there was precedent for such appearances, referencing Paul Volcker’s attendance at a Supreme Court case in the mid-1980s.

The nation’s highest court heard two hours of oral arguments last week on whether President Donald Trump has the authority to remove Cook from the Federal Reserve’s Board of Governors. The court is expected to issue a ruling by summer in a case that could fundamentally reshape the relationship between the central bank and the executive branch.

The legal battle began in late August when Trump announced he was firing Cook from the board, alleging she misrepresented information related to three mortgages she obtained before joining the Fed. Cook has denied any wrongdoing and has not faced criminal charges.

In response to her dismissal, Cook sued Trump in federal court in Washington, D.C. On September 9, a district court judge temporarily blocked Trump from removing her while the case proceeds, a decision later upheld by a federal appeals court.

The case carries significant historical weight. Cook, appointed by former President Joe Biden in 2022, made history as the first Black woman to serve as a Fed board governor. Now she stands at the center of a constitutional showdown that could redefine the Fed’s independence.

The seven-member Federal Reserve Board plays a crucial role in the American economy, setting national interest rates and overseeing the banking system. The board’s independence from political pressure has long been considered essential for maintaining economic stability and preventing policy decisions based on short-term political considerations rather than long-term economic health.

Adding to the tension surrounding the Fed, Powell himself faces challenges to his leadership. The Fed Chair is currently the subject of a Justice Department criminal investigation regarding his congressional testimony on the Federal Reserve’s headquarters renovation.

Powell confirmed the investigation during the press conference, describing it as “unprecedented” and suggesting it was driven by political pressure. However, he maintained that he respects the rule of law and congressional oversight. When pressed for additional comments, Powell declined to elaborate further, referring reporters to a video statement he released on January 11.

The Fed Chair has consistently insisted on completing his term, which ends in May, despite mounting pressure. His decision to address these matters publicly marks a significant departure from his typically measured approach to communication.

The dual controversies come at a delicate time for the central bank. Market observers note that any perception of political influence over the Fed could disrupt financial markets and undermine confidence in monetary policy decisions.

The outcome of Cook’s case could establish a precedent for presidential power over supposedly independent agencies. If the Supreme Court rules in Trump’s favor, it would mark the first time a president has successfully removed a sitting Federal Reserve governor before the end of their term, potentially weakening the institutional safeguards that have protected the Fed’s autonomy for over a century.

As the Federal Reserve navigates this largely uncharted territory, the financial world watches closely for signals about how the institution’s independence might be preserved or altered in the coming months.