President Donald Trump’s critiques aimed at the Federal Reserve this year elicited little reaction from Wall Street. However, an impending Supreme Court decision has the potential to shake that composure.
Throughout his second term, Trump has exerted considerable pressure on the Fed, frequently calling for reductions in interest rates and suggesting he might dismiss Chair Jerome Powell. The central bank has indeed adjusted rates downward twice this year, in September and October, with another potential cut scheduled for December.
Despite this, market participants appear steadfast in their belief in the Fed’s capacity to manage inflation, as evidenced by metrics such as long-term yields on US Treasury securities and projections for inflation.
This faith is considerably tied to a Supreme Court challenge regarding Trump’s endeavors to remove Fed Governor Lisa Cook, an appointee of the Biden administration and the first African American woman to hold a position on the Fed’s board.
Should the ruling favor Trump, the Fed’s highly valued autonomy in setting monetary policy free from political interference could be severely undermined.
Nevertheless, Wall Street seems to anticipate that the Supreme Court will ultimately uphold the central bank’s independence. The markets also appear to think that no candidates being considered to replace Powell as Fed Chair when his term concludes in May present any risk in this area.
“As of now, Wall Street is quite content with the Federal Reserve’s independence,” remarked James Ragan, who serves as the director of wealth management research at the financial services entity DA Davidson.
Evidence suggesting investors have largely remained unconcerned
Within just three days of Trump announcing his purported dismissal of Cook in August—a first attempt to remove a Fed governor in the institution’s nearly 112-year history—the S&P 500 finished the day at a new high, with other major stock indices also gaining ground.
Concurrently, the yield on the 10-year US Treasury note, a benchmark utilized for various lending rates, has shown a consistent decrease since springtime, coinciding with Trump’s threats to dismiss Powell. This trend implies that investors do not foresee interest rates spiraling out of control over the next decade, signaling confidence in the central bank.
Federal Reserve Governor Lisa Cook discusses “The Outlook for the Economy and Monetary Policy” at the Brookings Institution in Washington, DC, on November 3, 2025.
Federal Reserve Governor Lisa Cook discusses “The Outlook for the Economy and Monetary Policy” at the Brookings Institution in Washington, DC, on November 3, 2025. Kevin Lamarque/Reuters
Indeed, long-term inflation expectations derived from market data, which gauge Wall Street’s trust in the Fed’s inflation-fighting capability, have remained stable throughout the year.
However, worries regarding escalating government budget deficits have contributed to increases in what are known as term premiums—the additional yield investors require for holding longer-duration bonds over shorter ones. Market participants note that concerns about the Fed’s independence have also marginally contributed to this upward pressure.
Two critical junctures for the Fed
The court has scheduled oral arguments for late January to deliberate whether Trump possesses the authority to terminate Cook. The basis cited by the President involves unproven allegations of mortgage fraud. While the Justice Department is conducting an inquiry, she has not faced any charges. Earlier this month, legal counsel for Cook characterized the accusations as “unfounded” and pressed the department to close its investigation.
In a separate matter decided in May, the justices issued a unanimous opinion stating that Trump could prevent Gwynne Wilcox, whom he had removed from the National Labor Relations Board, from serving on the NLRB while her legal challenge to overturn her termination proceeds.
However, the Supreme Court explicitly noted that this ruling does not have implications for the Federal Reserve.
“Markets derived considerable reassurance from that,” stated Randall Kroszner, a former Fed governor, during a central banking symposium on October 31, organized by the Peterson Institute for Economics (PIIE). He suggested investors “hold the view that the Supreme Court will adopt a sensible and measured stance” in the Cook case.
Investors are also paying close attention to Trump’s nominations for the next Fed Chair. Treasury Secretary Scott Bessent, overseeing the selection process, has provided the White House with a short list of five individuals drawn from within the administration, the Fed, and the private sector. This roster includes National Economic Council Director Kevin Hassett, as well as Fed Governors Christopher Waller and Michelle Bowman.
Bessent recently indicated to CNBC that an announcement from Trump could be anticipated around the Christmas holiday.
“The markets still appear reasonably confident that the Fed’s independence will hold firm, and I believe this is partly due to the caliber of the individuals put forward for the Fed chairmanship being sound,” commented Francesco Bianchi, an economics professor and monetary policy expert at Johns Hopkins University, also at the PIIE conference.
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