5:4! The US Supreme Court "solely protects" the Federal Reserve, and the biggest winner is Waller.

A dismissal controversy targeting Federal Reserve board members unexpectedly paved the way for the new chairman Warsh to operate independently. On Monday, the U.S. Supreme Court ruled 5:4 to block Trump from forcibly dismissing Federal Reserve board member Lisa Cook during litigation. This ruling not only preserved Cook’s position, but more importantly, drew a judicial red line for the Fed: the president cannot arbitrarily replace Fed officials to install policy allies. According to the Wall Street Journal, the most immediate beneficiary of this ruling is Warsh, who became Fed Chairman in May. Upon taking office, he faced an unresolved question—can the president forcibly dismiss Fed board members “for cause”? Now, the Supreme Court has provided an answer, and it favors the Fed. Ruling details: The Fed is the only exception These are two Supreme Court rulings issued the same day, with completely opposite directions. The first, by a 6:3 vote: officials of other independent agencies no longer enjoy “protection from dismissal”; the president may freely replace them. This ruling is considered a major victory for the conservative “unitary executive” theory and destabilizes the constitutional foundation of independent agencies since 1935. The second, by a 5:4 vote: the Fed is the exception. Chief Justice John Roberts, in the majority opinion, cited the Fed’s “unique historical status and policy role,” ruling that it does not fall under the preceding logic. The ruling requires that Trump must give Cook the opportunity to respond to accusations and cannot directly force her out. Taken together, these two rulings send a clear signal: the Fed has a special status among all federal agencies, and the Supreme Court recognizes the term protections granted by Congress to Fed officials. Why Warsh is the biggest winner Cook won the lawsuit, but according to Wall Street Journal analysis, Warsh is the true beneficiary. The logic is simple: if the president could freely fire Fed board members, he could constantly pressure the chairman—“If you don’t cut rates, I will replace those around you, until you are isolated.” This was the tactic used by the Nixon administration against then-chairman Arthur Burns in the 1970s, including floating proposals to expand the Fed Board and dilute his control. The ruling blocks this path. Investment manager Mark Spindel commented: “Allowing the president to fill the board with loyalists would create all kinds of trouble. This would undermine Warsh’s ability to focus on the policy mission, manage the board, and build his personal legacy.” Spindel also said: “If the president can fabricate reasons to fire board members, then install real puppets around Warsh—how can Warsh manage the institution?” One vote difference, risks remain However, the victory is not solid. A 5:4 ruling means Roberts and Justice Brett Kavanaugh joined three liberal justices for a narrow majority. Kavanaugh, in a separate opinion, tried to reassure the market by stating the matter is settled. But Justice Amy Coney Barrett, in her dissent, pointed out a serious tension between the ruling protecting Fed independence and the ruling removing protection for other independent agencies. According to Bloomberg columnist and Harvard Law Professor Noah Feldman, Roberts’ majority opinion is more pragmatic than originalist, citing Alexander Hamilton’s arguments about the economic necessity of an independent central bank. Kavanaugh’s concurring opinion was more direct: “Even a momentary uncertainty about the Fed’s status could provoke political turmoil and chaos in the U.S. and global economy.” Feldman noted this is the kind of consideration originalism is supposed to disregard. Justice Clarence Thomas explicitly claimed Fed independence is unconstitutional, Barrett found these arguments worth serious deliberation, and Alito and Gorsuch stayed silent on the Fed’s independence—Feldman sees their silence as significant, suggesting they too may be inclined to deny Fed independence. Feldman concludes: the Fed’s independence currently hangs by one vote. The Cook case: “fabricated reasons” for dismissal Cook’s own ordeal highlights the political nature of this struggle. Trump sought to fire Cook last August, based on accusations from housing official Bill Pulte—that Cook allegedly misreported residency status in a 2021 mortgage application for two properties. Cook, nominated by former President Biden and confirmed by the Senate in 2022, denied any wrongdoing. After Monday’s ruling, Cook stated the case was “a plot to dismiss me on fabricated pretexts because I refused to yield to political pressure and insisted on setting rates solely on what's best for the American people.” Roberts’ majority opinion also noted that, if the courts accept overly weak grounds for dismissal, every future Fed board member will know the threshold for being fired is extremely low. Minutes after the ruling, Pulte—recently appointed Acting National Intelligence Director—posted on social media that Cook would likely be charged with mortgage fraud, implying action against her will continue. Warsh’s real challenge The ruling gives institutional protection to Warsh, but policy pressures remain. Fed officials are currently discussing whether strong economic growth and persistent inflation will require rate hikes later this year, contrary to Trump’s preference for rate cuts. Former Fed Chairman Powell opted to remain as a Fed board member through 2028, breaking recent precedent. Powell’s public comments this spring suggest it relates to broader concerns about executive pressure. Powell may provide some degree of counterbalance to Warsh, but also leaves Trump with one less slot to fill with a policy ally. Warsh’s previous seat was held by Stephen Miran, who in all six board meetings voted for easier monetary policy. If Trump nominates another like-minded candidate, Warsh faces a dilemma: supporting loose policy may be seen by markets and peers as a loss of independence; opposing it could put him in direct conflict with the president who nominated him. Risk warning and disclaimer The market carries risks; investing requires caution. This article does not constitute personal investment advice, nor does it consider the special investment goals, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article suit their specific situation. Invest accordingly, at your own risk.