The US Supreme Court on Wednesday will hear arguments on Donald Trump's attempt to fire governor Lisa Cook, which could determine how much control the US President can have over the central bank.
The case, titled Trump v Cook, is seen as a broader gauge for Fed independence, a principle that the central bank should be protected from political pressure in setting the nation's interest rates.
Since returning to office last year, Mr Trump has pushed the limits of Fed independence to untested limits. That includes his attempt to remove Ms Cook from the Fed's seven-member board of governors. No official in the Fed's 100-year history has been fired.
Fed chairman Jerome Powell is expected to attend Wednesday's argument, US media reported, in a sign of public support for Ms Cook. Mr Powell, who is under criminal investigation over the central bank's renovation project, has previously declined to comment on the case.
A ruling on the case is not expected until June, although the judges could issue one sooner.
Under the Federal Reserve Act, Fed officials can only be fired “for cause”, a phrase that has never been defined because no president before Mr Trump tried to fire a governor. The phrase is generally understood to mean malfeasance or neglect of duty.
Mr Trump argued that he fired Ms Cook in August “for cause” on allegations of mortgage fraud before she was appointed to the Fed in 2022. Ms Cook sued the President and has denied the allegations, arguing through legal documents that Mr Trump is trying to push her out to have greater sway over interest rates.
This month, Mr Powell also revealed that the Department of Justice was investigating him regarding the Fed's multibillion-dollar headquarters renovation project.
The even-keeled Fed chief said the investigation was an attempt to intimidate him to lower rates.
“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” Mr Powell said in a video statement.
As Fed governors, Mr Powell and Ms Cook hold permanent votes on the Fed committee that sets the nation's interest rates, whose decisions are followed by most Gulf central banks because of the dollar peg.
However, if the Supreme Court rules in Mr Trump's favour, he can appoint a new member to fill the remaining 13 years of Ms Cook's tenure. Analysts fear such a decision could give the President more discretion to fire other Fed officials.
Fed independence is generally considered sacrosanct because officials' 14-year tenures allow them to make long-term decisions rather than short-term political ones, and thus be able to ward off bad bouts of inflation.
While the Supreme Court has been deferential to many of Mr Trump's efforts to oust officials at other independent agencies, analysts suggest the court could see the Fed differently.
Analysts point to one case – Trump v Wilcox – in particular. In that case, the court distinguished the Fed from the National Labour Relations Board.
“The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States,” the justices wrote at the time in a 6-3 ruling.
US District Judge Jia Cobb in September temporarily blocked Mr Trump from firing Ms Cook, arguing that he breached her rights to due process and that the mortgage fraud allegations were not sufficient cause to remove her. A US appellate court in DC refused the Trump administration's request to put Ms Cobb's order on hold.
The Supreme Court in October issued an order allowing Ms Cook to remain on the board while the court considers her case.
