Compared to Powell "receiving a subpoena," next week's trial is "even more important" for the Federal Reserve's independence and "significant for the markets."

Although Powell’s revelation on Sunday that he had received a subpoena from the Justice Department over the Federal Reserve headquarters renovation project sparked a huge controversy, multiple Wall Street analysts pointed out that the real eye of the storm is the Supreme Court hearing scheduled for January 21. At that time, the court will hear arguments regarding President Trump’s attempt to dismiss Federal Reserve Board member Lisa Cook. The ruling in this case will establish a key legal precedent: whether the White House can bypass the protections of the Federal Reserve Act “for cause” and forcibly remove Fed officials. Bank of America economist Aditya Bhave stated bluntly in his report: “If the court rules against Cook, it will significantly increase the likelihood of Powell being removed as a result of the Justice Department investigation. We have always believed that the impact of the Cook case on policy trajectory is more important than the selection of the next Fed chairman. Now we think this is even more certain.” He emphasized that this judgment will be a litmus test for whether the president can reshape the structure of the Federal Reserve. The market is closely watching these developments, because if the firewall of the Fed’s independence is breached, the logic of monetary policy-making could shift from “evidence-based” to “politics-based”—a fundamental threat to long-term capital costs and asset pricing. This situation has struck directly at the financial markets. According to CME Group data, traders have massively bet that the Fed will take no action in its policy meeting later this month, pushing expectations for the next rate cut out to June. Charles Schwab’s Head of Macro Research and Strategy, Kevin Gordon, pointed out that while the market reaction to Powell’s news was muted in magnitude, the direction was clear—dollar down, stocks down, bonds down—suggesting how the market might digest this long-term risk if the shock persists. **Supreme Court’s “Critical Battle”: The Domino Effect of the Cook Case** For investors, next Tuesday (January 21) is a date that must be circled on the calendar. The core of the hearing that day centers on allegations from the Trump administration that Lisa Cook misreported her primary residence on a mortgage application, amounting to fraud. Although Trump’s prior attempt to remove her was blocked by the courts, if the White House wins this time, it will clear legal obstacles for the president to dismiss Fed officials “for cause.”  < Lisa Cook video screenshot > According to Axios, the 1913 Federal Reserve Act stipulates that the president can only remove board members “for cause.” Syracuse University Associate Law Professor Jenny Breen pointed out that the Supreme Court has previously allowed the president broader removal powers in other agencies, but has tried to protect the Fed as a “structurally unique quasi-private entity.” However, if the court sides with Trump now, it will mean a further erosion of checks and balances on executive power. A Barron’s commentary article warns that investors are currently too complacent about this. If the court allows Cook’s dismissal, Trump will have an easier time removing Powell on the basis of investigative findings. The article notes: “If investors sense Trump gaining broad powers to dismiss board members ‘for cause,’ this month could mark the start of the next bear market, or even the beginning of a market crash.” **Long-Term Structural Risks Facing the Market** But the consequences of this legal battle go far beyond short-term market fluctuations. Barron’s analysis notes that if Trump wins the lawsuit and succeeds in “packing” the Fed, the worst-case scenario is the market cyclically tolerating a Fed composed of dovish loyalists, but when the economic cycle demands rate hikes and the new Fed refuses, the market would pay a far graver structural price. Charles Schwab's Kevin Gordon stressed, “The ruling in the Cook case will have enormous weight for any president’s ability to shape the Fed’s structure.” Jenny Breen believes that the investigation into Powell shows the administration feels “unbound by democratic norms,” so any check from the Supreme Court will be positive. “However, if the court fails to clearly maintain the Fed’s independence, the only constraint will be the market itself—that is, a dramatic market crash to prevent further presidential intervention in the central bank.” **Powell’s “Counterattack”: May Stay On as Governor and Fight to the End** Ironically, the Trump administration’s aggressive offensive may backfire. According to CNBC, the investigation into Powell—focusing on whether he lied in Congressional testimony about the renovation project—could prompt him to resolve to remain on the Fed Board after his term as chairman ends in May. Powell’s term as chairman is set to end in May, but his term as governor will last until 2028, meaning he could continue to serve on the Federal Open Market Committee (FOMC) and remain a roadblock to Trump’s attempt to push “steep” rate cuts. Deutsche Bank Chief US Economist Matthew Luzzetti said in a client report: “While this was never our base case scenario, this weekend’s events may increase the likelihood that Powell chooses to stay at the Fed. In fact, if the administration insists on criminally prosecuting Powell as chairman, and Senate Republicans refuse to advance Fed board nominations, the FOMC is likely to choose Powell to continue as chairman.” Polymarket data shows that the probability of Powell remaining on the Fed Board after his chairmanship ends has already topped 55%. Since last week, the probability of him leaving the Board by year-end has dropped from 70% to below 60%. In a statement on Sunday, Powell himself seemed to hint at this: “I will continue to fulfill the work confirmed by the Senate, with integrity and a commitment to serving the American people.” Risk Warning and Disclaimer Markets are risky; investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions in this article fit their particular circumstances. Any investment based on this is at one’s own risk.