The Supreme Court's Dilemma: Balancing Executive Power and Federal Reserve Independence
Is the Supreme Court prepared to challenge Trump's aggressive tactics? The former president, Donald Trump, has employed his signature strategy in his attempts to pressure the US Federal Reserve into lowering interest rates: when persuasion fails, resort to bullying, and if that doesn't work, threaten to fire.
In an extraordinary attack on the central bank, Trump publicly insulted the Fed Chair, Jerome Powell, calling him "stupid" and vowing to remove him for not reducing interest rates fast enough to suit Trump's preferences. The Justice Department even launched a criminal investigation into Powell's testimony regarding renovations at the Fed's headquarters. Despite this, the Fed has remained steadfast.
Trump's approach to the Fed mirrors his broader strategy of overhauling the federal government. He has discovered that persistent pressure often leads to his desired outcomes. And indeed, he has largely been successful.
However, with the Fed, Trump may have encountered a formidable opponent, at least in the eyes of the Supreme Court. During oral arguments on Wednesday, the justices expressed resounding skepticism regarding Trump's dismissal of Fed Governor Lisa Cook. This skepticism could be interpreted as a sign of the court's willingness to curb executive authority.
But legal experts caution that any ruling against Trump may not significantly limit his power. Instead, the court seems to be creating a special exception for the Fed, even as other government agencies' independence remains under threat.
"The consequences could be extremely damaging," warns Michael Dorf, a law professor at Cornell University. "The Supreme Court is waging war on independent agencies at the worst possible time, when we have a president who seeks to centralize power in himself and appoint loyalists with no relevant expertise."
Trump fired Cook in August, accusing her of mortgage fraud by listing multiple properties as her primary residence to secure a better mortgage rate. These accusations originated on social media, and Trump swiftly removed Cook days later. The White House appealed to the Supreme Court after a lower federal court temporarily reinstated Cook.
Trump's hasty firing of Cook, without a formal investigation or hearing, has raised numerous questions for the court to address. Was Cook denied due process by not receiving a hearing? Even if the mortgage fraud allegations are true (Cook's lawyers claim they have evidence it was an "inadvertent mistake"), does this constitute grounds for her removal? Should a lower court have decided on the case before it reached the Supreme Court?
The situation is further complicated by the unique nature of the Fed. The US central bank is designed as a quasi-private, independent government agency, shielded from political influence. Fed officials can only be fired by the president "for cause," yet the law remains vague on what constitutes "cause."
Underlying this case is a critical question with global economic implications: how much authority will the Supreme Court grant a president over the Fed?
Constitutional experts typically examine past Supreme Court decisions on similar cases, and Cook's firing is far from the first test of Trump's executive powers.
In the previous year, Trump fired several independent officials, including two Democratic-appointed members of the National Labor Relations Board (NLRB), which oversees unions, and Rebecca Slaughter, the commissioner of the Federal Trade Commission (FTC), responsible for regulating telecommunications and media.
The Supreme Court upheld Trump's firing of these officials, and in Slaughter's case, experts anticipate a landmark ruling that will bolster executive power for years to come.
Some within the US conservative legal movement have been advocating for the "unitary executive" theory, which asserts that the president should have the authority to fire any executive branch officers at will. This belief is rooted in the idea that the American people's votes should be the sole check on the president.
For conservative justices on the Supreme Court who embrace this theory, Trump's second term presents an ideal opportunity. Analysts predict that Slaughter's FTC firing, which is still pending, will enable the court to narrow or even overturn Humphrey's Executor v. United States, a landmark 1935 case that restricted the president's power to fire executive officials of independent agencies.
Interestingly, while conservative justices seem eager to expand presidential power, there appears to be one exception: the Fed.
The Supreme Court specifically mentioned the central bank when it permitted Trump's NLRB firings, even though the Fed was not involved in the case.
"The Federal Reserve is a uniquely structured, quasi-private entity with a distinct historical lineage from the First and Second Banks of the United States," the court's majority stated.
Many interpreted this as a signal that the court would resist if Trump attempted to fire an executive within the Fed.
Legal experts emphasize that the Fed's legal structure within the federal government is no different from other quasi-private, independent agencies.
"The elephant in the room during this oral argument is why, when it comes to Lisa Cook, the judges suddenly care about enforcing the statute of independence. But with Rebecca Slaughter and others he improperly removed, they dismiss the status as irrelevant, claiming his constitutional authority allows him to remove anyone for any reason," said Lev Menand, a professor at Columbia Law School.
The justices' reasoning appears to be influenced by both economic and legal considerations. Amy Coney Barrett, part of the 6-3 conservative majority, cited amicus briefs from economists who warned that firing Governor Cook could trigger a recession.
"How should we consider the public interest in this case?" she inquired.
Brett Kavanaugh, another conservative justice, directly questioned the Justice Department about the real-world implications of Fed independence.
"Let's discuss the practical consequences of this precedent. It seems to me, from a broader perspective, that what goes around comes around. If a Democratic president takes office on January 20, 2029, all of the current president's appointees could be removed for cause. So, what are we trying to achieve here?" Kavanaugh asked.
The Fed's power stems from its ability to set interest rates. High interest rates make borrowing more costly and can curb inflation, but at the risk of increasing unemployment. Trump's desire for lower interest rates is understandable, as they can provide a short-term economic boost, albeit with the risk of future price increases.
It's a delicate balance that requires analyzing economic data and considering long-term economic stability, rather than the political interests of those in power. Interfering with this independence could lead to economic shocks, such as a recession.
Lev Menand describes Trump's case against Cook as "an unstoppable force meeting an immovable object." While a majority of the justices may be comfortable curtailing the independence of agencies like the FTC, "it's a completely different game when it comes to the Federal Reserve."
"Major business interests don't want to see the Federal Reserve's capabilities diminished or politicized," Menand added.
Many legal scholars argue that the Supreme Court has been overly permissive of Trump's executive power, beyond the issue of independent agencies. Over the past year, the court has allowed the administration to continue aggressive immigration enforcement tactics and blocked lower courts from issuing nationwide injunctions that could have halted some of Trump's executive actions, as seen in his first term.
Michael Dorf expresses concern: "If the court rules against Trump in the tariffs case and in Cook's case, it will gain undeserved prestige for being unbiased and standing up to Trump. But while they may challenge him at the extreme edges of his actions, they're still allowing him to engage in various other behaviors that, in the past, we would have expected the court to oppose."
The timing of the court's decision on Cook's case is uncertain, but a ruling is expected by June.
