The End of Fed Independence? Markets Watch Supreme Court for "Judgment Day"

The US Dollar (USD) and Treasury markets face a potential structural rupture this week as the US Supreme Court begins hearing arguments in Trump vs. Cook. The case, ostensibly an employment dispute involving Federal Reserve Governor Lisa Cook, has morphed into a referendum on the central bank's independence from the White House.

The Case: Trump vs. Cook

At the heart of the legal battle is the White House's assertion that the President possesses the executive authority to remove Federal Reserve governors for administrative reasons, bypassing the protections enshrined in the Federal Reserve Act.

While the case nominally targets Cook, legal experts and market strategists at UBS warn that a ruling in favor of the administration could facilitate the removal of Chairman Jerome Powell.

Monetary Policy at Risk

If the court rules that the President can fire Fed officials without strict limitations, the barrier between fiscal desires and monetary discipline would crumble.

• Market Implication: A politicized Fed would likely face pressure to cut interest rates aggressively, ignoring inflation dynamics.
• Asset Repricing: This shift would necessitate a massive repricing of long-term inflation. US Treasuries could sell off, while the Greenback could suffer a loss of trust.

“Bumpy” 2026 Ahead

Analysts are calling 2026 a potentially volatile year for US assets. With the White House issuing subpoenas to the Fed—seen as pressure on Powell—institutional friction is reaching a boiling point.

Unless the Supreme Court reaffirms the independent structure, a verdict undermining autonomy would trigger a sell-off in the USD against majors like the JPY and CHF.