President Donald J. Trump’s recent dismissal of Federal Reserve Governor Lisa D. Cook has ignited a fresh discussion about the law surrounding such removals, specifically what “for cause” truly means. Supporters of Cook insist that serious misconduct must be proven, while advocates for the President assert that he has broad discretion in defining that cause.
These disagreements aren’t exactly new; in fact, tensions over this issue have persisted for nearly a century, tracing back to when Congress unintentionally removed the “for cause” protection and later scrambled to restore it.
A curious omission
The Federal Reserve Act of 1913 established the Federal Reserve Committee, comprised of seven members, including the Secretary of Treasury and the Secretary of Currency, with five presidential appointees serving staggered 10-year terms, removable only “for cause” by the President.
However, the Emergency Banking Act of 1933 omitted this protective clause. For about two years, board members served at the pleasure of the President, an alteration that went largely unnoticed until 1935.
Senator Carter Glass of Virginia, who was instrumental in crafting the 1913 Federal Reserve Act, admitted he must have “dozed off” as those changes occurred.
A 1935 debate
Lawmakers were alerted to these omissions while discussing the 1935 Banking Act. Figures like Treasury Secretary Henry Morgenthau and various bankers argued that Fed officials should have judicial-like protections that could only be lifted through specific channels. Others recommended a list of reasons for removal, such as inefficiency, neglect, or fraud, echoing language found in other regulatory statutes.
On the flip side, influential central banker Mariner Eccles contended that monetary policy is inherently political, necessitating presidential oversight for effective governance.
The Senate ultimately struck a compromise, reinstating the “for cause” clause but left its meaning vague.
The Supreme Court’s influence
During the legislative discussions, the case of Humphrey’s Executor vs. United States loomed large. This Supreme Court case examined whether President Franklin D. Roosevelt could fire the Chief Secretary of the Federal Trade Commission, where specific removal criteria were laid out, namely inefficiency, neglect, or misconduct, with no leeway beyond that.
In May 1935, the court reaffirmed these stringent provisions for dismissal and backed Roosevelt’s decision. Congress may have intended to mirror this rigor in the Federal Reserve Act but ultimately opted for the vaguer “for cause.”
Political reality check
Senator Carter Glass made it clear in 1935 that Congress never aimed for the Federal Reserve to be entirely apolitical. His belief was that while it should be insulated from daily White House influence, it couldn’t evade accountability. Thus, a written justification was required from the President for any dismissals.
In an April 1935 hearing, Glass expressed it succinctly:
“In terms of political influence, the original proponents of this law envisaged a degree of political control in the Board of Supervisors. The secretaries of Treasury and Currency ensure that at least two of the seven members are influenced by the President. Therefore, the President can indeed reject one or more members based on written reasons.”
At that time, many lawmakers were disenchanted with the Federal Reserve’s policies during the early 1930s, which they believed exacerbated the ongoing crisis. This sentiment would later gain traction among economists Milton Friedman and Anna Schwartz, who posited that policy missteps lengthened the recession.
In this environment, both demands for Eccles’ removal and proposals to provide more explicit protections for board members were dismissed.
Similarly, stricter suggestions from Winthrop W. Aldrich, who argued for the requirement of a specific cause and hearing to remove members, also fell flat.
The resulting compromise allowed presidential intervention in severe situations while ensuring the Fed’s independence from being a mere political tool.
During discussions with New Jersey banker Frank C. Ferguson, Glass clarified that the “cause” requirement wasn’t meant to imply a formal investigative process.
Ferguson: “I think you’ve heard recently that the U.S. President is believed to hold the power to remove Federal Reserve Committee members.”
Glass: “Yes, he does have the authority to remove them for a cause, as specified in writing to the Senate.”
Ferguson: “I was unaware the President had to like indict them.”
Glass: “Well, he’s not obligated to file accusations. He needs to provide a reason for removal.”
This exchange hints at lawmakers’ expectations that removal would rely on subjective assessment of “cause,” rather than formal charges or hearings.
Congressional leaders prioritized structural safeguards over litigation, establishing a federal open market committee, staggered terms, and requiring Senate confirmation of presidential appointees, ensuring that the removal of a single member wouldn’t fundamentally upend policy.
Why does this history matter?
Cook’s dismissal raises crucial questions about how contemporary courts interpret “cause;” is it a broader, political term as Senator Glass described? Legal scholars like Lev Menand argue that a legitimate process and evidential hearing should be mandated, with publications like the New York Times calling for the President to justify his actions legally.
Yet, historical records from 1935 indicate that Congress intentionally avoided imposing such high evidentiary standards. Instead, they opted for a set of political accountabilities shrouded in ambiguity.
This situation highlights the ongoing tension between historical intent and modern expectations, as courts grapple with standards designed for flexibility.
