Henry Meier, Esq., The Law Office of Henry Meier, Esq.
For the first time since the Federal Reserve was created in 1913, the Supreme Court heard arguments today in a case that addresses the extent of a president’s power to remove a member of the Board of Governors of the Federal Reserve. Depending on the Court’s decision, the ruling could result in the Federal Reserve losing its independence from the executive branch.
Here are some key takeaways.
- It seems highly unlikely that the Court will grant the President’s request and remove Cook during the pendency of the litigation.
- At least some of the justices were concerned about the negative economic consequences of a decision weakening Fed independence.
- While the Court may uphold the Federal Reserve’s independence, it will do so only after distinguishing the Federal Reserve from other traditionally independent agencies.
On Aug. 25, the President announced on social media that he was firing Federal Reserve member Lisa Cook. The Administration learned that she had filed mortgage applications for two houses within two weeks and in these applications, she asserted that each house would be her primary residence. The President argued that her actions gave him “cause” to remove her from the board. She successfully obtained a preliminary injunction from the federal district court in Washington, and this ruling was upheld on appeal.
Trump vs. Cook is now before the Supreme Court. In today’s argument, the Solicitor General argued that Cook’s incorrect mortgage applications amounted to “gross negligence.” He also argued that the courts should defer to the President’s judgment and allow him to remove Cook pending the outcome of the case.
A solid majority of the court appeared unwilling to grant the President’s request. For instance, Justice Amy Coney Barrett expressed concern over the impact that the decision granting the president greater authority over the Federal Reserve could have on the economy. Other justices were concerned that in future removal cases, courts could lack the authority to review a president’s removal decision. Less clear is the reasoning that the Court will use in its ruling.
In December, the Court heard arguments in FTC vs. Wilcox. In that case, the Administration is arguing that the heads of independent agencies, including the NCUA, can be removed by a president for any reason. Based on the tenor of that argument, it is likely that the Court will rule in favor of the Executive Branch. So, what is the distinction between an independent agency and the Federal Reserve?
First, the Solicitor General acknowledged that the Fed was a quasi-private, uniquely structured entity that stands in the distinctive sort of tradition of the First and Second Banks of the United States.
Justice Kavanaugh argued that the Federal Reserve was designed to shield the board from political pressures when deciding interest rates. He expressed concern that a favorable ruling for the President will start a cycle of “what goes around comes around” with all the president’s appointees removed “for cause” in 2029 if a Democratic president is elected. Lowering the bar for removing board members would effectively allow a president to remove board members at will.
Other justices said that there was not enough information at this point to decide the case on the merits and suggested that it be returned to the district court for further fact-finding while board member Cook remains on the job. Justice Alito noted that the case presented “very difficult questions” for which there was “no precedent or very conflicting precedent,” and the Court might be helped by a more complete record.
Henry Meier, Esq., helps credit unions stay ahead of the curve. You can email him here.