In a somewhat unusual display of modesty, President Donald Trump seems to be downplaying his authority over the Federal Reserve.
Lisa Cook was dismissed by Trump “for cause,” with a mortgage violation mentioned as a potential pretext. Legally speaking, he should have the ability to fire her as well as Chairman Jerome Powell.
The independence of the Federal Reserve is rooted in a somewhat constitutional anomaly, allowing it to exercise administrative authority outside the typical constraints faced by other governmental departments.
This independence is seen as beneficial for maintaining financial stability. Still, it allows the Fed to operate without strict adherence to constitutional norms for rational reasons.
It’s worth noting that Lisa Cook believes she cannot be dismissed and has taken legal action to retain her position, while Jerome Powell quips about his inability to leave his role as chairman.
According to legal definitions, “cause” can be interpreted broadly, often relating to noncompliance with presidential directives or simply disagreements on policy.
As for Powell, there’s technically no statutory limit on how he can be removed from his chairmanship.
Interestingly, the director of the Consumer Finance Protection Agency is somewhat insulated from being fired, as removal must also be “for cause.”
A Supreme Court ruling from 2020 deemed such restrictions unconstitutional.
This aligns with the court’s recent inclination to affirm the president’s right to dismiss officials who carry out executive responsibilities.
Article 2 of the Constitution doesn’t provide an explicit right for the president to fire executive branch officials, but such authority is implied, a point acknowledged by key founding figures like James Madison and Alexander Hamilton.
In a 1922 Supreme Court ruling, Judge William Howard Taft stated that the president has the authority to vet any officials, as this choice is vital for enforcing the law.
The establishment of independent agencies during the New Deal, along with judicial decisions, pushed back against attempts to remove officials, as illustrated by the case involving FDR and the Federal Trade Commissioner.
Recently, however, the ruling regarding the CFPB has undermined the logic that had previously upheld the autonomy of such agencies.
Judge Clarence Thomas’s remarks on the CFPB case indicate uncertainty about the remaining relevance of Humphrey’s rationale.
He suggested that whatever remains isn’t sufficient to justify the existence of many independent entities with substantial enforcement powers outside the constitutional framework.
This should certainly be on the radar of the Fed.
Interestingly, the court chose not to rule on the Federal Reserve’s unique legal standing regarding removal powers.
That said, there’s no legal justification for treating the Fed as an unaccountable entity, as it operates with executive power through extensive regulatory authority, akin to the CFPB.
The court ruled that if a government agency carries out enforcement tasks, it typically falls under the president’s removal authority.
One clear solution could involve amending the Constitution to clarify the status of independent bodies like the Fed.
Alternatively, the Federal Reserve’s regulatory duties could potentially be reassigned to another agency, even though its fundamental financial functions might still require enforcement.
The Supreme Court appears hesitant to tackle the intricate issues surrounding the Fed.
Despite this, it seems certain that, in legal terms, Lisa Cook might need to consider updating her resume.
