With independent agencies imperiled, Fed may face further pressure despite Cook win

The Supreme Court just delivered two rulings that, taken together, amount to the most significant reshaping of federal power in nearly a century — and the Federal Reserve is now standing alone on a very thin island.

In the first decision, the Court ruled that President Trump cannot fire Federal Reserve Governor Lisa Cook based on unproven allegations of mortgage fraud, which she denied. The ruling protects Fed independence — but only barely, in a 5-4 opinion that left the central bank more isolated than it has been in decades.

In the second, the Court backed Trump's firing of Federal Trade Commission member Rebecca Slaughter, overturning the 1935 Humphrey's Executor precedent that had shielded independent agency officials from presidential removal for 90 years. The result: most independent agencies can now have their leaders removed at the president's will. The Fed, uniquely, cannot.

The Fed is now the last agency standing with meaningful protection from political interference. That is a distinction that comes with a target on its back.

## Why the Cook Ruling Matters

The Cook decision lifts a potential cloud over new Fed Chairman Kevin Warsh, a Trump appointee who took over the central bank last month. Trump has so far offered hands-off comments, saying he trusts Warsh and wants him to pursue the policies he deems best — a shift in tone from his steady criticism of former Fed Chair Jerome Powell, whom he originally nominated in 2017.

A ruling against Cook would have put Warsh and his colleagues under immediate threat. Should Trump's tune change, any Fed governor could have been removed on a manufactured pretext. The Court's ruling establishes a "substantial" hurdle for proving the seriousness of alleged misconduct and requires a "nexus" with the person's Fed duties — a meaningful, if not insurmountable, barrier.

Chief Justice John Roberts, writing for the majority, was blunt: "Without such constraints in place, any perceived or alleged misstep (past or present) could provide a ready pretext for a governor's removal. Nothing could be more corrosive of the independence that Congress sought to preserve."

But Roberts also wrote, in the Slaughter ruling, that "subordinates who exercise the president's power are subject to removal by him." The two statements coexist uneasily. The Fed has been carved out as special — but the Court has not fully explained why it deserves that special treatment beyond historical and structural arguments about its hybrid public-private design.

## The Fed's Island Is Shrinking

Until Monday, Fed officials shared protection from arbitrary dismissal with policymakers at other independent agencies — the FTC, the NLRB, the CPSC, and others. That shared foundation was rooted in the 1935 Humphrey's Executor precedent, which recognized the importance of expertise wielded outside the direct influence of elected officials.

That foundation is gone. The FTC, NLRB, and other agencies can now have their leaders removed at will. Only the Fed retains "for cause" protections, and those protections are narrower than they were last week.

Columbia Law School professor Kathryn Judge, who focuses on Fed and regulatory issues, captured the stakes: "Fed independence lives on but the foundation is much weaker than it has been over the past 90 years. In a very close, 5-4 opinion, the court says the Fed is different from other agencies. The Fed is now going to be forced to stand alone."

The problem with standing alone is that every future challenge to Fed independence will be decided on its own merits, without the structural support of a broader principle about independent agencies. Former Fed vice chair for regulation Randal Quarles put it more directly: "The Supreme Court says, 'Look, here's how the system is supposed to operate, the president has to be able to dismiss entities that execute executive power.' But the Fed — we just say it's magically different. At some point that is an unstable solution."

## What This Means for Monetary Policy

The practical impact on interest rate decisions may be limited in the short term. The Fed has maintained its independence through far more direct political pressure than a court ruling. But the ruling changes the landscape in three important ways.

First, the political cost of challenging the Fed just went down. When multiple independent agencies existed, attacking the Fed meant attacking a whole ecosystem of expertise-based governance. Now the Fed is a single, isolated institution with a fragile 5-4 Supreme Court precedent protecting it. Expect more legislative and executive challenges.

Second, the Warsh era begins under a cloud of ambiguity. Warsh is a Trump appointee who has not yet faced a major rate decision. If the economy softens and the Fed needs to cut rates against the White House's inflation concerns, or if inflation heats up and the Fed needs to hold firm against political pressure for cuts, the question of whether the president can remove governors will hang over every vote.

Third, Cook's case is not over. The Court did not rule on the substance of Trump's mortgage fraud allegations, only that she could stay in office pending a court proceeding on the firing. Trump said Monday he will continue to pursue the matter. The legal fight continues, and with it, the uncertainty.

## The Bigger Picture: Who Runs the Economy?

The deeper question is whether monetary policy set by independent technocrats is still a principle the United States is committed to. The economic consensus in favor of central bank independence is strong: countries where politicians set interest rates tend to experience short-term economic booms before elections followed by higher inflation and lower growth afterward. Global bond markets trust independent central banks more than politically directed ones, which means cheaper borrowing costs for everyone.

But democratic accountability also matters. The Fed is now arguably the most powerful unelected institution in American life, setting interest rates that determine mortgage payments, savings returns, and employment levels for 330 million people — with less democratic oversight than at any point since its creation in 1913.

The Court's ruling tries to balance these competing values, but the balance is precarious. As Professor Judge noted, it is now "possible for the Fed to maintain its independence as the other independent agencies disappear. But it puts far more pressure on the Fed to justify its independence in the eyes of the public."

## What This Means For You

- **Your mortgage and savings rates are still set by the Fed.** The Court's ruling preserves the current system where technocrats, not politicians, determine interest rates. That is generally good for long-term economic stability and predictable borrowing costs.

- **But the political pressure valve just opened wider.** With other agency protections gone, every politician who disagrees with a Fed decision now has a clearer path to challenge the institution. Expect more hearings, more rhetoric, and more attempts to influence rate decisions — especially ahead of elections.

- **Watch the Warsh era closely.** The new Fed chair has not yet faced a defining moment. When one comes — a recession, an inflation spike, a financial crisis — the question of whether the Fed can act independently will be tested in real time. How Warsh navigates that test will shape the economy for years.

- **Bond market confidence matters more than ever.** The reason central bank independence exists is that markets trust it. If that trust erodes — if investors start pricing in political interference — borrowing costs rise for everyone. The 10-year Treasury yield is the best real-time barometer of this confidence. Watch it.

- **The Cook case isn't over.** Trump has said he will continue pursuing the matter. If the underlying allegations are eventually adjudicated and found to have merit, it could open the door to a governor's removal "for cause" and establish the boundaries of that term for the first time. The precedent set here will matter for decades.