A scandal over the dismissal of Federal Reserve Board members unexpectedly paved the way for new Chairman Warsh to operate independently.

The U.S. Supreme Court ruled 5:4 on Monday to prevent Trump from forcibly firing Federal Reserve Governor Lisa Cook during the lawsuit. This ruling not only preserved Cook's position, but more importantly, it drew a judicial red line for the Federal Reserve: the president cannot remove Fed officials at will to fill in policy allies.

According to the Wall Street Journal, the most direct beneficiary of this ruling is Warsh, who just took office as Chairman of the Federal Reserve in May this year. When he took office, there was an unanswered question hanging over his head - can the president forcibly fire a Federal Reserve Board member for "cause"? Now, that question has been answered by the Supreme Court, and the answer is in the Fed's favor.

Judgment content: The Federal Reserve is the only exception

These are two rulings issued by the Supreme Court on the same day, with completely opposite directions.

The first item, ruled 6:3: Officials of other independent agencies no longer enjoy "protection from dismissal" and can be replaced freely by the president. The ruling was seen as a major victory for the conservative "unitary executive power" theory, which completely shook the constitutional basis of independent institutions since 1935.

The second item was ruled 5:4: The Federal Reserve is the exception. In the majority opinion, Chief Justice John Roberts cited the Federal Reserve's "unique historical position and policy role" and determined that the above logic did not apply. The ruling requires that if Trump wants to fire Cook, he must give her an opportunity to respond to the accusations and cannot directly forcibly remove her from office.

Taken together, the two rulings send a clear signal: The Federal Reserve has a special status among all federal agencies, and the tenure protections granted by Congress to its officials have been recognized by the Supreme Court.

Why Wash is the biggest winner

Cook won the lawsuit, but according to analysis by the Wall Street Journal, it was Wash who benefited the most.

The logic is simple: If the president can fire Fed governors at will, he can constantly put pressure on the chairman - "If you don't cut interest rates, I will replace the people around you until you are isolated." This is exactly what the Nixon administration used against then-Chairman Arthur Burns in the 1970s, including threatening to expand the number of seats on the Federal Reserve Board and dilute its control.

The ruling blocked the road. Investment manager Mark Spindel said: "Allowing the president to fill the committee with cronies will cause all kinds of trouble. It will undermine Warsh's ability to focus on his policy mission, manage the committee and build his personal legacy."

Spindel also bluntly said: "If the president can fabricate reasons to fire directors and then install a bunch of real puppets around Warsh - how can Warsh run this agency?"

One vote difference, the hidden danger has not been eliminated

However, this victory was not secure.

The 5:4 ruling means that Roberts and Justice Brett Kavanaugh teamed up with three liberal justices to barely get through. In a separate concurring opinion, Kavanaugh sought to reassure markets, saying the matter had been settled. However, Justice Amy Coney Barrett directly pointed out in her dissent that there is a "serious tension" between the ruling to protect the independence of the Federal Reserve and the ruling to abolish the protection of other independent institutions.

According to analysis by Noah Feldman, a Bloomberg columnist and Harvard law professor, Roberts' majority opinion is logically closer to pragmatism than originalism - he quoted extensively from Alexander Hamilton's discussion on the economic necessity of an independent central bank. Kavanaugh's collaborative opinion is more straightforward: "Even short-term uncertainty about the status of the Federal Reserve could trigger political turmoil and chaos in the U.S. and global economies."

Feldman points out that this is precisely the kind of consideration that originalism is supposed to rule out. Justice Clarence Thomas clearly argued in his dissent that the Fed's independence is unconstitutional, and Barrett also believed that these arguments deserved to be taken seriously. Alito and Gorsuch have remained silent on the issue of Fed independence - Feldman believes that this silence itself is meaningful and implies that they may also be inclined to deny the Fed's independence.

Feldman’s conclusion is: The Fed’s independence currently hangs on just one vote.

Behind the Cook case: an “excuse-making” dismissal

Cook’s own experience also reflects the background of this political game.

Trump sought to fire Cook last August, citing allegations from housing official Bill Pulte that Cook misreported his residency status on one of his properties when he applied for mortgages on two properties in 2021. Cook, who was confirmed by the Senate and nominated by former President Biden in 2022, has denied any wrongdoing.

After Monday's ruling, Cook issued a statement calling the case "an attempt to fire me under fabricated pretexts because I refused to yield to political pressure and insisted on setting interest rates only based on what was best for the American people."

Roberts also pointed out in the majority opinion that if the court accepts too weak grounds for dismissal, every future Fed governor will know that the threshold for dismissal is extremely low.

Minutes after the ruling came out, Pulte - who had recently been promoted to acting director of national intelligence - posted on social media that Cook was expected to be charged with mortgage fraud, suggesting that the campaign against her would continue.

The real challenge faced by Wash

The ruling provided institutional protection for Wash, but the policy pressure did not dissipate.

Federal Reserve officials are currently discussing that if economic growth is strong and inflation persists, they may need to raise interest rates later this year rather than cut interest rates as Trump hopes.

Former Federal Reserve Chairman Jerome Powell chose to stay on as a Fed governor until 2028. The decision breaks with recent practice. Powell's public statements this spring suggested the move was tied to his broader concerns about administrative pressure. Powell's presence may act as a check on Warsh to some extent, but it also leaves Trump with one less seat to fill with policy allies.

Wash’s former seat was held by Stephen Miran, who voted in favor of looser monetary policy at all six Fed meetings he attended. If Trump nominates another candidate with a similar stance, Warsh will be in a dilemma: if he supports loose policies, he may be regarded by the market and colleagues as a loss of independence; if he opposes it, he may confront the president who nominated him.