Presidential power vs central bank independence! The US Supreme Court will hear the "Koch case" today, and the ruling may reshape the foundation of the Federal Reserve's century-old institution.

So far, the United States Supreme Court has been helping the Federal Reserve resist various attempts by President Trump to take control. The upcoming trial debate, set to begin this Wednesday local time, will test the Supreme Court's determination to uphold the independence of the Federal Reserve. Supreme Court justices will consider whether Trump can dismiss Fed director Lisa Cook on grounds of mortgage fraudwhich Cook herself has denied. It is worth noting that this trial overlaps with a criminal investigation by the Justice Department into Fed Chairman Jerome Powell, which has drawn bipartisan opposition. Formally, the core controversy of the Cook case is whether Trump has the right to temporarily suspend her while her related lawsuit is ongoing. However, the legal issues involved in this case could have far-reaching implications beyond the individual case itselfshould the ruling favor Trump, it could open the door for him to dismiss Powell and other Fed directors. These directors have already clashed with Trump for not quickly lowering interest rates as he requested. Powell, a lawyer by profession, plans to attend the trial debate in person. "The significance of this case is not limited to Cook personally," said Lev Menand, a law professor at Columbia University who has been researching the Federal Reserve and has submitted amicus briefs opposing Cook's dismissal. "Its essence lies in whether Trump can control the Federal Reserve Board in the coming months." Former Treasury Secretaries, former Fed Chairs, and other expert scholars from both parties in the U.S. have emphasized the significant implications of this case for the U.S. and global economy. In their joint amicus brief, they noted that a ruling favorable to Trump could severely undermine public trust in the Fed and impair the effectiveness of its monetary policy. Research shows that central banks in most developed economies that can independently set interest rate policies without political interference tend to achieve lower inflation levels and better economic development in the long run. Trump has repeatedly threatened to dismiss Fed officials and continued to pressure the central bank to significantly lower interest rates, leading to growing concerns that the Fed's independence is facing erosion. Trump's Allegations Trump claims that it is actually Cook who is harming the credibility of the Federal Reserve. The Trump administration alleges that in 2021, Cook fraudulently listed two properties in Michigan and Georgia as "primary residences" when applying for a mortgage, in order to obtain more favorable loan terms. Deputy Assistant Attorney General D. John Sauer stated in court documents that Trump's judgment is valid: "The interest rates of the American people should not be determined by someone making false statements on crucial matters affecting her own mortgage rates, which is either gross negligence at best or fraud at worst." However, the Supreme Court is not currently focusing on whether these allegations are true. Cook's side argues that these allegations are baseless and are entirely the result of "partisan interpretations" of the relevant documents. Cook's lawyer stated in a letter in November of last year, "There is no evidence suggesting that Director Cook made false statements or had the subjective intent required to commit fraud." In May of last year, a Supreme Court ruling seemed to provide protection for Fed directors. At that time, the Supreme Court ruled that Trump had the authority to dismiss high-ranking officials of two other independent agencies, but specifically excluded the Fed from the scope of that ruling. Although the ruling was temporary, it overturned the statutory job protections established by Congress for those positions. The majority opinion of the Supreme Court Justice believed that based on the powers granted to the President by the Constitution, the President could essentially dismiss high-ranking officials of the executive branch for any reason. The Federal Reserve Act contains similar provisions, stating that the President may not dismiss Fed governors unless there are "statutory grounds." In the aforementioned ruling, the Supreme Court specifically emphasized that the ruling on the National Labor Relations Board did not apply to the Fed, calling it a "structurally unique institution with quasi-private attributes." However, less than three months later, the Trump administration targeted Cook, claiming that the mortgage fraud allegations constituted "statutory grounds" for her dismissal. Cook's nomination as a Fed director initially faced strong opposition from Republicans and was eventually narrowly approved by the Senate. Since joining the Fed Board in 2022, Cook has consistently voted in alignment with Powell. Despite Trump's repeated calls for significant interest rate cuts, Cook has supported the Fed's decisions to maintain interest rate stability for most of last year. Cook subsequently filed a lawsuit, and both federal lower courts ruled that Trump could not dismiss her until the relevant legal proceedings were completed. In September of last year, Trump appealed to the Supreme Court. In the past year, in multiple cases involving the dismissal of officials, the majority conservative justices on the Supreme Court have ruled in favor of Trump. Trump's current request is for the Supreme Court to approve his immediate dismissal of Cook. However, the Supreme Court has taken an unusual step: announcing that it will hold a trial on this case in January of this yearwhich suggests that the Supreme Court is not eager to meet Trump's demands. The justices may even delay making a final decision until late June of this year. Involvement of Powell With the launch of an investigation by the U.S. Department of Justice into Powell and the issuance of a subpoena, the stakes of this case have escalated further. The origins of this investigation are related to Powell's testimony before Congress last June regarding the cost of renovating the Fed headquarters. Powell later released an unusual video statement, openly stating the purpose of this investigationto pressure the Fed to lower interest rates. Michael Dorf, a law professor at Cornell University who co-submitted an amicus brief supporting Cook, wrote on social media that the Department of Justice's subpoena might "make the Supreme Court justices cautious." Dorf further stated in an interview that this move "exposes the real intentions of the Trump administrationto use 'statutory grounds' for dismissals as an excuse, but in reality, it is a reckoning for policy disagreements." On the other hand, Cook's side argues that Trump's dismissal of her had multiple improprieties. Cook's lawyer argued that even if the allegations were true, they did not constitute "statutory grounds" for dismissal because they were unrelated to her job performance and qualifications. Furthermore, Cook's side also points out that under the U.S. Constitution and the Federal Reserve Act, she has important procedural rights, including the right to defend against the allegations before being dismissed. It should be noted that this case is currently on the Supreme Court's list of emergency cases, and Trump's request is limited to approving his temporary dismissal of Cook. Given this situation, the justices may not necessarily need to make a final ruling on the core legal issues mentioned above. Instead, they might consider the potential consequences of the case, including its economic impact, and its broad implications for the Fed and the Federal Open Market Committee in their rate-setting work. "If the Supreme Court rules to allow the dismissal of Cook, then fundamentally, all Fed directors will become employees who can be dismissed at will," said Derek Tang, an economist at LH/Meyer Monetary Policy Analytics. "In this way, with each new president taking office, the current directors could all be dismissed and replaced, effectively controlling the entire Federal Open Market Committee." Supporters of Trump's position argue that the above concerns must give way to constitutional provisions. "The U.S. Constitution did not establish a fourth branch independent of the three powers, free from accountability, to oversee monetary and banking affairs," said Jacob Huebert, a lawyer for the New Civil Liberties Alliance. The organization has been working to oppose what it defines as government abuses of administrative power. "Some may believe that the Constitution should have such a provision, but the reality is otherwise."