US Court Case on Federal Power: Why India Is Paying Attention

The US Supreme Court is set to hear oral arguments in a prominent ongoing case between the Federal Reserve and President Donald Trump on Wednesday, January 21, 2026. The dispute centres on Trump’s attempt to remove Federal Reserve Governor Lisa Cook, raising questions about how protected the US central bank is from political interference.

The US Fed Case

The dispute began last year when President Trump sought to dismiss Fed Governor Lisa Cook. He alleged mortgage-related misconduct dating back to before her appointment to the Federal Reserve Board. No criminal charges have been filed in connection with the claims.

Lower courts blocked the removal, stating that the action failed to meet the “for cause” requirement under the Federal Reserve Act. Cook continues to serve on the Board of Governors while the case proceeds.

During Monday’s hearing, Supreme Court judges focused on whether the president has the authority to remove a Fed governor without clear legal justification. Another key question was whether such positions enjoy constitutional protections that shield them from political dismissal.

Federal Reserve Chair Jerome Powell attended the hearing to defend the institution’s independence.

How Does This Compare With India’s RBI Policy?

The US case is testing whether a president can directly intervene in the functioning of the central bank by removing a senior official.

In India, by giving the central government the power to choose the governor, deputies, and a majority of board members, the RBI Act of 1934 integrates political influence into leadership without the need for legal disputes. Section 7 empowers government orders "in the public interest" after consultation, but is rarely invoked and has caused frictions in the past.

The establishment of the Monetary Policy Committee in 2016, however, codifies joint rate decisions to combine accountability and RBI competence.

How Would This Impact India's Economy?

India and other emerging markets are susceptible to changes in the credibility of the global monetary system. The risk premium of the rupee may rise in response to a change in confidence. Inflation pressures from imports may increase as a result. Yields on government bonds may also rise in response to increased perceived risk.

A rise in the sovereign term premium typically raises borrowing rates throughout the system by tightening financial conditions for banks and non-banking financial firms.

India's MPC framework, however, with binding statutory decisions under RBI Act amendments, provides a rules-based anchor for inflation targeting. This might help stabilise expectations amid external shocks like the current Fed case.

Sources:

Reuters
Livemint
Economic Times