A major development in Trump’s Fed feud is set to happen next week in the Supreme Court

As the Justice Department continues its investigation into the Federal Reserve, the next front in the central bank’s quest to maintain its political independence shifts to the Supreme Court.

On January 21, the high court will hear arguments regarding President Donald Trump’s efforts to oust Federal Reserve Governor Lisa Cook.

Administration officials last year accused Cook of committing mortgage fraud by misrepresenting which property was his primary residence on mortgage applications. Trump has tried to remove Cook from his position but has so far been blocked by the courts. If the White House wins the case, it could set an important precedent for the president’s ongoing attempt to oust Fed Chair Jerome Powell.

“If the court rules against Cook, it would significantly increase the likelihood that Powell could also be removed from office based on the DoJ investigation,” Bank of America economist Aditya Bhave wrote in a note. he said. “We argue that the Cook case is more important to the course of policy than the identity of the next Fed Chair. We think that’s even more true now.”

The stakes rose in the Fed saga when Powell announced Sunday that he had been served subpoenas from the Justice Department related to the controversial multimillion-dollar renovation project at the central bank’s headquarters in Washington. The investigation reportedly focuses on whether Powell lied about the project in her congressional testimony last year.

Trump has harshly criticized Powell and toyed with the idea of ​​firing him last year. Powell has insisted Trump cannot fire him, but that could change if the president can provide justification.

On the surface, the effort to oust Powell seems academic: His term as president ends in May, and Trump is free to nominate a new nominee later. But Powell’s term on the Board runs through 2028, meaning he could stay in office and block Trump’s efforts to lower the Fed’s interest rates “MAKES SENSE!!!” a social media post Tuesday.

But it could also provide further incentive for Powell to finish out his term on the board as a bulwark against Trump’s efforts to curb the Fed’s independence from political manipulation.

Powell, for her part, has mostly refrained from commenting on Trump’s deeply personal and at times harsh criticism. While other presidents have tried to force the Fed to loosen monetary policy, Trump has stood alone in how open and aggressive he has been. Moreover, this is the first time the Justice Department has gone after a sitting Fed chairman.

Some analysts say these conditions could lead to a protracted fight that Powell decides to continue.

Deutsche Bank was drawing parallels between Powell and former Fed Chairman Marriner Eccles (whose name now appears on a Fed building), who decided to remain chairman after President Harry Truman ousted him in 1948. Eccles remained governor until 1951 and was a voice in favor of central bank independence.

Moreover, a rebellion within the Federal Open Market Committee, which sets the Fed’s interest rates, could even result in Powell remaining as chairman, though Trump could appoint a separate chair to run the central bank.

“While this has never been a baseline and in fact seems a relatively remote possibility, events this weekend likely raise the possibility that Powell may choose to remain at the Fed,” Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said in a client note. “In fact, if the administration insists on pursuing criminal prosecution of Chairman Powell and Senate Republicans remain adamant about not nominating him to the Federal Reserve Board, the FOMC is likely to choose Powell to remain chairman.”

This goes back to the Cook trial.

If Trump prevails, he could use this as justification to fire Powell. If Cook wins, a long-term battle of wills will begin between the Fed and the White House that could have significant policy ramifications.

Markets are watching for clues about the Fed’s moves; Traders are betting heavily against any action at the policy meeting later this month. Instead, they think the next outage won’t come until June, according to CME Group data.

Kevin Gordon, head of macro research and strategy at Charles Schwab, wrote that Cook’s decision “will carry enormous weight when it comes to any president’s ability to shape the structure of the Fed.” “Yet make no mistake: despite its size Movements in various markets were limited in response to the Powell news; “The direction (dollar down, stocks down, bonds down) is an indication of how these shocks should be absorbed if they persist over the long term.”