Trump's impeachment case may impact Powell's future and the Fed's independence.

A seemingly ordinary labor board dismissal case could HSBC HSBC foreign exchange securities dealerhave far-reaching implications for the U.S. financial system, potentially shaking the "iron rice bowl" of Federal Reserve Chairman Powell. The U.S. Supreme Court is hearing the case concerning President Trump's dismissal of two federal labor board members, Harris and Wilcox. The market is closely watching this ruling as it may determine whether Powell can continue as Fed Chairman.

Trump's firing of Harris and Wilcox sparked widespread legal controversy. Even though these positions are legally protected from arbitrary dismissal, Trump's move is seen as a significant test of presidential power. The core of the case is whether the congressional protections for these positions infringe on presidential powers as outlined in the Constitution, particularly when these officials' terms have not yet ended. Harris and Wilcox were appointed by former President Biden and still have several years in their terms, making Trump’s dismissal a critical case testing whether a president can exert control over independent federal agencies.

If the Supreme Court rules to remove the dismissal protections for these labor board members, this decision could pave the way for Trump to further control other independent agencies, including the Federal Reserve. Legal experts point out that whether the court establishes a special exception for the Federal Reserve governors will significantly impact the Fed's independence. In a previous 2020 ruling, the court hinted that the Fed might be distinguished from other independent agencies due to its "unique historical status" and thus enjoy greater independence.

Whether Federal Reserve Chairman Powell’s position can receive legal protection might depend on how the Supreme Court interprets the precedent set in the 1935 "Humphrey's Executor v. United States" case. In that case, the court upheld protections for Federal Trade Commission members from dismissal, determining that the president cannot dismiss them over policy disagreements. This ruling is seen as the legal basis for similar protections for Federal Reserve Board members.

However, as Trump repeatedly criticized Powell for not cutting interest rates further, financial markets have become increasingly concerned. Trump even called Powell a "big loser," although he later stated he had no intention to fire Powell, temporarily alleviating market expectations. Powell has indicated that the Fed will consider adjusting rates once economic data becomes clearer and expressed concern about Trump's tariff policies, which he believes could complicate inflation and employment issues.

Trump's firing of Harris and Wilcox is not only part of his efforts to reform the U.S. government but also raises questions about whether the Federal Reserve should remain independent. Legal scholars and political observers assert that the current Supreme Court decision will have significant implications for the U.S. financial system and future government structures.

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