On Monday, President Donald Trump attempted to dismiss Lisa Cook, a Federal Reserve member appointed by Biden. The motivations, while not completely opaque, seemed to revolve around a specific “cause.”
William Palt, the director of the Federal Housing Finance Agency, alleged that Cook had committed mortgage fraud by misrepresenting her primary residence in order to secure a better interest rate.
This move marked the first instance where Trump tried to remove a Fed governor for a stated reason, leading to criticism from his opponents who argued he was breaching institutional norms. However, Trump was acting within his constitutional rights to make such a removal, regardless of the reasoning.
Reflecting on core principles, modern administrative states operate somewhat apart from direct political accountability. This situation creates inherent tensions with the founders’ vision of a clearly demarcated separation of powers among Congress, administrative agencies, and the judiciary.
The Constitution’s Article 2 vests all “executive power” in the President. As former President William Howard Taft indicated in the Myers v. United States case, this includes the authority to remove executive officers. The Humphrey’s Executor v. United States case from the New Deal era is often viewed as an exception regarding independent institutions, but many constitutional experts regard it as a deviation from the norm.
Indeed, the Supreme Court has somewhat redefined the landscape. In Seila Law v. Consumer Financial Protection Bureau (2020), the Court ruled that Congress cannot shield an executive officer from presidential removal. The Collins v. Yellen case (2021) reiterated this by striking down limits on the President’s ability to remove the head of the FHFA.
In Trump v. Wilcox, it was noted that while the court did not apply similar limitations to federal commission members, it did affirm removal authority in that context. The court’s brief order characterized the Fed as “a uniquely structured …entity.”
But is that really the case? Can it be legally justified? Fed governors are appointed by the President and confirmed by the Senate, wielding significant policy-making power that impacts the economy, interest rates, and the value of the dollar. This does suggest a level of enforcement authority.
Crucially, if the Fed isn’t part of the executive, then can the President fully exercise removal power? The Fed clearly doesn’t fall under Congress or the judiciary.
Wilcox’s ruling mentioned the Fed’s historical roots in early U.S. banking, but those earlier banks didn’t function like a modern central bank. Since its establishment in 1913, the Fed has been closely tied to the evolution of administrative states, stemming from Wilson’s vision. Legally, it’s more akin to other entities within this framework.
Ultimately, Trump needs the authority to dismiss members of the Federal Reserve. Without it, the structure could be deemed unconstitutional. There isn’t really a middle ground here.
Regarding the legal foundations, the Federal Reserve Act of 1913 did not explicitly grant the power for removal without cause. The term for governors was set at 14 years, yet it left the definition of “cause” ambiguous. Cook’s attorney, Abbe Lowell, contends that legitimate cause would imply prior charges or convictions. However, Congress didn’t specify that condition.
What remains is that “cause” without a clear definition essentially becomes subjective. And surely, no reason is more justified for removing a governor of the country’s central bank than alleged fraud? Such allegations pose significant questions about the Fed’s legitimacy, which is, in fact, vital for national interests.
It’s essential to remember that the term length does not equal job security. Stating that a governor’s tenure is “14 years” doesn’t mean he can’t be removed within that time. Courts have consistently made this distinction, as seen in the firing of FBI Director James Comey, who was dismissed less than four years into a ten-year term.
A lawsuit will likely happen, and that’s unavoidable. These disputes are necessary. Trump’s first term faced challenges from bureaucrats who often acted independently of the elected government. It’s crucial that these kinds of hurdles don’t happen again in his second term. The first dismissal of a sitting federal governor sends a powerful signal—Americans are once again taking charge through their elected representatives.
