The Issue Not Presented in Trump v Cook: Is the Fed Really Different From Other Independent Agencies?

Tomorrow morning the Supreme Court will hear oral argument in Trump v. Cook. I intend to listen along to the Court's Live Audio feed and to post snarky comments on BlueSky (here) while doing so. As the case comes to the Court, it presents a number of issues, including: Can pre-appointment conduct constitute "cause" for removal of a member of the Federal Reserve Board of Governors? Did the President's purported removal of Lisa Cook from her position based on unproven allegations violate her Fifth Amendment right to due process? To what extent can courts review a presidential for-cause removal that appears to be pretextual? Was the district court's order maintaining Cook in office a proper remedy?

The Solicitor General contends in his main merits brief that "this case does not involve the constitutionality of the Federal Reserve Board's Removal protections," but that is only true in a technical sense. If Trump prevails based on the record here, those removal protections would be rendered ineffective. Thus, the challenge for the SG is to explain to the Court how it can rule for Trump without completely undermining Fed independence. The SG is unlikely to meet that challenge for the simple reason that Trump wants to completely undermine Fed independence. Put simply, there is no way the SG can satisfy both his boss and the Court.

I assume that the Court wants to preserve Fed independence for two main reasons. First, in cases involving Trump's removal of members of other independent agencies, the Court stayed the interim relief that lower courts had granted; here, the Court rejected Trump's stay application.

Second, the Court has repeatedly stated that invalidating removal protections for members of other agencies would not affect the Fed. Here's the line from Trump v. Wilcox in May of last year: "The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States." For that proposition, the Court cited footnote 8 of Seila Law v. Consumer Financial Protection Bureau.

At this point, I should lay my cards on the table. Based on last month's oral argument in Trump v. Slaughter, I expect the Court to overrule Humphrey's Executor v. United States (in effect if not formally) and rule that good-cause removal restrictions are generally unconstitutional but to distinguish the Fed. In my view, and as I explain below, I don't expect to find the distinction persuasive. My preference would be that the Court uphold removal restrictions for the Federal Trade Commission (at issue in both Humphrey's and Slaughter) and other agencies along with the Fed. But given that this appears to be unlikely, I'd prefer that the Court distinguish the Fed rather than strike down removal protection for it as well. Thus, the argument I'm about to make--questioning the basis for distinguishing the Fed--is one I hope the Court rejects.

That said, I am writing here as a scholar, not an advocate, so I feel some obligation to explain why I find the argument for distinguishing the Fed unpersuasive. It starts with Seila Law, which presented the question whether good-cause removal protection for a single director of the CFPB was constitutional. The majority said no in an opinion that was mostly devoted to arguing that good-cause removal protection for a single agency head is different from such protection for the members of a multi-member board. That argument was unpersuasive on its own terms. As Justice Kagan explained in dissent, it is easier, not more difficult, for a president to oversee a single individual than a whole board--so the distinction between a single agency head and a multi-member board was backwards and thus oughtn't to have made a difference.

Justice Kagan's dissent also explained why the majority was mistaken to take a generally hostile view towards removal restrictions--about which the constitutional text is silent. Here's her conclusion about the Founding Era:

the founding era closed without any agreement that Congress lacked the power to curb the President’s removal authority. And as it kept that question open, Congress took the first steps—which would launch a tradition—of distinguishing financial regulators from diplomatic and military officers. The latter mainly helped the President carry out his own constitutional duties in foreign relations and war. The former chiefly carried out statutory duties, fulfilling functions Congress had assigned to their offices. In addressing the new Nation’s finances, Congress had begun to use its powers under the Necessary and Proper Clause to design effective administrative institutions. And that included taking steps to insulate certain officers from political influence.

From there, Justice Kagan's Seila Law dissent went on to explain how Congress built upon that foundation in the ensuing decades. What was the majority's response? In that footnote 8, the Court ignored most of the evidence Justice Kagan cited about a variety of federal agencies engaged in financial regulation and said this:

The dissent categorizes the CFPB as one of many “financial regulators” that have historically enjoyed some insulation from the President. But even assuming financial institutions like the Second Bank and the Federal Reserve can claim a special historical status, the CFPB is in an entirely different league. It acts as a mini legislature, prosecutor, and court, responsible for creating substantive rules for a wide swath of industries, prosecuting violations, and levying knee-buckling penalties against private citizens. And, of course, it is the only agency of its kind run by a single Director.

Set aside the single-Director issue from Seila Law. The majority's claim that the Second Bank of the United States was a lone historical outlier is not consistent with the evidence Justice Kagan cited. Nor does the Court's characterization of the CFPB as super-powerful make any sense. Compared with the Fed?? When one reviews the actual evidence, there is no principled way to say that the Fed alone is validated by a historical tradition.

In Wilcox, the Court also suggested that the Fed and precursors like the First and Second Banks of the United States are different from other agencies because each is or was a "quasi-private entity." But it's not at all clear why that should make a difference. Perhaps the theory is that insofar as an entity is private, it cannot exercise what Article II calls "The executive power." I suppose there's something to that. A sufficiently capitalized fully private bank might try to affect interest rates by making open market purchases and sales of government debt in the same way that the Fed does. Such a bank would not be exercising government power in so doing and thus would not implicate the vesting clause.

But that is simply not relevant to what the actual Fed is or does. Despite its quasi-private status, when the Fed buys or sells Treasuries, it does so to carry out--dare I say "execute"?--its statutory dual mandate to limit inflation and unemployment. So Fed monetary policy is most fairly described as the exercise of executive power. And of course, that's not the only thing the Fed does. It also "regulates" in the most conventional sense, by supervising and issuing regulations governing financial institutions. Because the Fed executes the law, the fact that the Fed is quasi-private makes its independence from the president more problematic, not less so. (I'm aware that Sasha Volokh has argued that there is no private nondelegation doctrine. Nonetheless, at least in this context, if one is worried about the exercise of executive power to persons not accountable to the president, private or quasi-private status is problematic.)

Thus, the reasons the Court has offered for treating the Fed as unique are unpersuasive. A majority of the Justices nonetheless apparently have sufficient sense not to want to invalidate Fed independence because they recognize that a central bank that is subject to presidential control will likely set and keep interest rates too low for too long, generating excess inflation or potentially even catastrophic hyperinflation. That's a risk with any president but especially with a vindictive, tyrannical president who is an economic ignoramus.

Fortunately, the Justices seem inclined to mitigate the damage they will do in Slaughter by insisting on genuine for-cause removal protection for Fed governors in Cook. It seems unlikely that tomorrow's oral argument will focus directly on how to distinguish the Fed from other agencies. But one hopes and has reason to expect that the policy disaster that would result from a Trump victory in Cook will be on the minds of a majority of the Justices during tomorrow's argument.