Congress never wanted it to be easy for a president to remove an official at the Federal Reserve.
That was how the law establishing the central bank was written over a century ago. The idea was to ensure that policymakers focused less on pleasing the president and more on setting interest rates that would foster a robust economy.
The Supreme Court on Wednesday is considering just how fortified that removal protection should be, as the justices hear arguments in the case revolving around Lisa D. Cook, a governor at the central bank who is suing President Trump for trying to fire her.
Ms. Cook’s future at the Fed is not the only thing at stake. If the Supreme Court sides with Mr. Trump, legal experts warn that the independence of the central bank could be in jeopardy.
“We are at the top of a slippery slope,” said Gary Richardson, who served as the Fed’s historian and is now an economics professor at the University of California, Irvine. “The Supreme Court will push us further down that slope if the justices rule against Cook.”
The Federal Reserve Act stipulates that a president can only remove an official at the Fed “for cause,” which is typically interpreted to mean malfeasance or gross misconduct while carrying out the duties of the job. The term has never been well-defined, because no president has tried to remove a policymaker at the central bank.
Mr. Trump said he had “cause” to fire Ms. Cook citing allegations of mortgage fraud. But Ms. Cook, who has not been charged with a crime, has argued that this is about the president’s desire for lower interest rates.
Speaking at the World Economic Forum in Davos, Switzerland on Wednesday, Mr. Trump said the United States “should be paying the lowest interest rate of any country in the world.”
As part of the administration’s pressure campaign, the Justice Department has also launched a criminal investigation into Jerome H. Powell, the Fed chair, over his handling of renovations underway at the central bank’s headquarters in Washington.
Mr. Powell, who is attending Wednesday’s oral arguments, took the extraordinary step of calling out the administration for trying to use legal threats to coerce the central bank into delivering to the president the policy settings he wants.
Removal protection is just one of many guardrails Congress put in place. To further protect the institution from political meddling, the Fed’s politically appointed and Senate-confirmed governors are also given staggered 14-year terms. That helps ensure that officials are not beholden to election cycles and instead think about what is best for policy over time.
Interest rate decisions, which Congress stipulated should be aimed at achieving a healthy labor market and low, stable inflation, are also made by a 12-person policy committee. That includes all seven members of the board of governors, the president of the Federal Reserve Bank of New York and a rotating set of four other presidents of the 12 regional Reserve Banks.
Those presidents are not handpicked by the president, but are instead selected by local directors. The Fed’s board can ultimately veto who is picked for those positions, but it is not the only body involved in the selection process.
Lawmakers also gave the Fed the authority to control its own budget and staff, further insulating the central bank.
But these guardrails are only powerful so far as they are reinforced when tested.
“Giving the president the authority to remove people at will means that the other defenses against encroachments on Fed independence are gravely weakened,” said William B. English, a Yale professor and a former director of the Fed’s division of monetary affairs.
He added: “If the president can fire people from the board, then I don’t think there’s any real protection left, and you have the White House able to control monetary policy.”
Historians typically point to the 1970s as an example of why ceding that control to the White House is so economically damaging.
President Richard M. Nixon, who wanted lower borrowing costs to boost the economy ahead of the 1972 election, installed Arthur F. Burns, his economic adviser, as Fed chair in 1970. Mr. Burns, who led the central bank until 1978, bowed to that political pressure and helped to unleash one of the worst bouts of inflation in the country’s history.
The Fed was unable to tame price pressures until Paul A. Volcker took over as chair in 1979 and sharply raised rates. That caused a painful recession that drew political outcry, but it forced inflation down and put the economy on more stable footing.
“If Volcker hadn’t succeeded in making price stability the fundamental prerequisite for the operation of the free-market economy, we would have lost that economy and our productivity,” said Robert L. Hetzel, who worked as an economist at the Richmond Fed from 1975 to 2018.
Mr. Hetzel warned that the Trump administration’s efforts to gain more latitude over officials at the Fed were dangerous, and risked undermining the central bank’s ability to make economically necessary, but politically painful, policy decisions.
“If they decide against Cook, then this process of taking over the Fed is greatly accelerated, and we just jumped back into the 1970s,” Mr. Hetzel said.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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