WASHINGTON (AP) — Over the past year, the Supreme Court has repeatedly allowed President Donald Trump to fire the heads of independent agencies, but it appears to be drawing a line with the Federal Reserve.
The court has signaled for months that it sees the Fed in a different light. It said the president can fire directors of other agencies for any reason, but can only remove Fed governors “for cause,” which is often interpreted to mean dereliction of duty or abuse.
Last year, the court allowed President Donald Trump to fire — at least temporarily — National Labor Relations Board member Gwynne Wilcox and Merit System Protection Board member Cathy Harris, but made a distinction for the Fed. The two officials had argued that if Trump could fire them, he could also fire the members of the Fed’s governing board.
“We disagree,” the court said at the time. “The Federal Reserve is a uniquely structured quasi-private entity that follows the distinct historical tradition of the first and second banks of the United States.”
That is now being tested in a case before the Supreme Court involving Trump’s attempt to oust Fed Governor Lisa Cook. During oral arguments Wednesday, the court appeared inclined to keep Cook in her job.
Allowing Cook to be fired “would weaken, if not destroy, the independence of the Federal Reserve,” said Judge Brett Kavanaugh, one of three Trump appointees to the nation’s highest court.
But the court largely sidestepped a key issue: What, exactly, is the legal principle that protects the Fed but not the other agencies?
Several legal experts say the judiciary is on shaky ground. The Fed, they argue, is similar in many ways to the Federal Trade Commission or the National Labor Relations Board, agencies that Congress intended to be independent but whose officials Trump was able to fire without high court rejection.
“There is no historical reason to distinguish the Fed from other independent agencies designed by Congress,” said Jane Manners, a law professor at Fordham University. “The whole argument was based on the idea that the Fed is different. They didn’t explain exactly why.”
Peter Conti-Brown, a professor of financial regulation at the University of Pennsylvania, added: “I will say, as a legal scholar and as a historian, I think the differentiation is hocus pocus.”
Just last month, the court signaled in a separate oral argument that it would likely allow Trump to fire FTC Commissioner Rebecca Slaughter. The court’s conservative majority also suggested it would overturn a 90-year-old precedent that sharply limited the president’s ability to fire senior officials at independent agencies.
President John Roberts and many of his colleagues support the “unitary executive” theory, which holds that the president should have full influence over the staff of executive branch agencies.
Agency executives like Slaughter “exercise massive power over individual liberty and billion-dollar industries” without accountability to anyone, Kavanaugh said at the hearing in December.
With the Federal Reserve, however, conservative Supreme Court justices applied a different view: that the Fed’s monetary policy—setting short-term interest rates and managing the money supply—has not historically been overseen by the executive branch.
Some legal experts have also drawn a distinction between the Fed and other independent agencies. In a brief filed in the Cook case, Aaron Nielson, a University of Texas law professor and former top Texas government attorney, wrote that: “While the modern FTC indisputably exercises executive power, the Fed’s core function is monetary policy, which does not need and often does not require executive power.”
The First and Second Banks of the United States were nationwide banks that were the closest thing to a central bank in the first decades of the nation’s founding, and both “conducted early monetary policy,” Nielson wrote, but were not agents of the executive branch.
But Lev Menand, a law professor at Columbia University and author of a book about the Fed, argued that the Fed exercises its executive power when it regulates the banking system. And monetary policy, when it adjusts the money supply, is part of that regulation, he said.
There are also only three types of government authorities, Menand argues: legislative, executive, and judicial, and the Fed belongs in the executive category.
“There is no fourth kind of government power,” Menand said. “There is no other place to locate the Fed.”
Still, the justices largely avoided addressing why the Fed is different during Wednesday’s oral argument, in part, Menand noted, because neither side pushed it. Cook’s lawyers had no reason to question a distinction that seemed to favor them.
And even the government’s top Supreme Court lawyer, D. John Sauer, acknowledged that Trump could fire Cook only “for cause,” while in the other cases the White House has sought to remove officials for any reason, including policy differences. The distinction made it harder for the White House to argue that Cook should be immediately removed from office.
“There is a long tradition of this exercise of monetary policy being exercised independently of executive influence,” Sauer said. “And we don’t dispute that that’s what Congress was doing.”
Paul Clement, one of Cook’s lawyers, told the justices, “That’s why I think this case is problematic for the government because they could have come in here and said, you know, the Fed, schmed, it’s not that different. This is just like the FTC.”
Instead, Clement added, “they come in and say, no, we’re going to accept that the Fed is different, at least in this case.”
The Supreme Court will initially rule on the narrow question of whether Cook can remain in her position while the broader dispute over her firing is fought out in lower courts. At some point, however, it may have to issue more comprehensive rulings that could include a fuller explanation of why the justices see the Fed as different.
For now, the Fed’s size and impact on financial markets can give it a measure of protection.
“I don’t want to denigrate any other agency, but there’s a reason monetary policy has been handled differently for many years,” Clement said. “And there’s a reason why the markets watch the Fed a little more closely than they really watch any other government agency.”