Why the justices defended the Federal Reserve

Major Questions is a recurring series by Adam White, which analyzes the court’s approach to administrative law, agencies, and the lower courts.

Please note that the views of outside contributors do not reflect the official opinions of SCOTUSblog or its staff.

Will America’s central bank stay independent from presidential control? For months, the Trump administration has threatened to fire the chair of the Federal Reserve Board, Jerome Powell, in violation of a statute that protects his and his colleagues’ tenures. It would be a profound mistake – “the road to the hyper-politicized monetary policy you’d expect in Argentina,” the Wall Street Journal recently warned.

So when the Supreme Court offered a few words in defense of the Fed’s unique independence in our constitutional system, in an unsigned procedural order a few months ago, it gave welcome reassurance to U.S. and international markets.

Yet the court’s statement was not welcomed by all. Some analysts criticized it as inconsistent with the court’s own recent jurisprudence. Others – particularly Justice Elena Kagan, in dissent – wondered why the court’s majority would opine on the Fed “out of the blue.”

Are the court’s critics right? That is, are the court’s recent rulings a threat to the Fed’s independence?

Respectfully, no – both lines of criticism miss the mark. But both deserve attention, for they reflect a misapprehension of the court’s recent decisions, and a mistaken effort to equate traditional regulatory agencies with the central bank.

Let’s begin with the substantive criticism: namely, the question of whether recent decisions of the court endanger the Fed’s independence.

In Trump v. Wilcox, two recently terminated officials – Gwynne Wilcox of the National Labor Relations Board and Cathy Harris of the Merit Systems Protection Board – filed a lawsuit against President Donald Trump, seeking to be reinstated to their jobs.

Trump had fired each of them without making any effort to comply with laws that limit a president’s power to fire the NLRB’s and MSPB’s leaders except for good cause. (NLRB members serve a term of five years and can be removed “for neglect of duty or malfeasance in office, but for no other cause.” MSPB members serve for seven years and can be removed “only for inefficiency, neglect of duty, or malfeasance in office.”) District judges blocked both firings, each invoking the 1935 landmark precedent of Humphrey’s Executor v. United States, which created a major exception to the president’s normal power to fire agency heads at will.

The court in Humphrey’s Executor acknowledged that the Constitution vests “the executive power” in the president alone; this vesting of power in him, and the president’s constitutional responsibility to “take Care that the Laws be faithfully executed,” empowers him to fire executive officers at will. But, crucially, the court added that this principle does not apply with the same force for federal agencies that “are neither political nor executive, but predominantly quasi-judicial and quasi-legislative” – which, in Humphrey’s, was how the court saw the Federal Trade Commission. “The commission is to be nonpartisan, and it must, from the very nature of its duties, act with entire impartiality,” the court wrote; “its members are called upon to exercise the trained judgment of a body of experts ‘appointed by law and informed by experience.’” Thus, for the FTC and similar agencies, the court held, Congress can enact laws allowing a president to fire the leaders only for good cause – say, for “inefficiency,” “malfeasance,” or “neglect of duty” – much to President Franklin Delano Roosevelt’s chagrin.

Humphrey’s Executor was controversial from the moment it was decided. The “quasi-judicial,” “quasi-legislative” standard has never been clear, to say the least. Indeed, Justice Robert Jackson later quipped that Humphrey’s “quasi” was “a smooth cover which we draw over our confusion, as we might use a counterpane to conceal a disordered bed.” And in recent years, many have called for the precedent to be renounced completely. But the Roberts court has repeatedly declined to do so.

Instead, for the last 15 years, the court has elected to leave Humphrey’s Executor in place, but to refuse to extend it to protect newer kinds of independent agencies, stating repeatedly that it is limiting Humphrey’s Executor to that case’s specific holding. As the court stated in the most prominent of those recent cases, Humphrey’s Executor applies only to the heads of “multimember expert agencies that do not wield substantial executive power.”

That was the court’s holding in 2020’s Seila Law v. Consumer Financial Protection Bureau. Congress had established the CFPB a decade earlier, creating it to be the primary law-enforcement agency for consumer financial laws, and structuring it to be led by a single director, instead of a multi-member commission structure akin to the FTC, the Federal Energy Regulatory Commission, and other independent agencies.

The court held that Congress could not insulate the CFPB from the president’s full removal power, because the CFPB is significantly different from the agencies that Humphrey’s Executor protected. According to the majority, the CFPB’s powers – especially the power to bring enforcement actions against private parties – are “quintessentially executive.” And, quoting Humphrey’s, the court further observed that the CFPB’s single-headed leadership “cannot be described as ‘a body of experts’ and cannot be considered ‘non-partisan’ in the same sense as a group of officials drawn from both sides of the aisle.” Seila Law was soon followed by a similar case challenging the Federal Housing Finance Agency, whose single-headed structure and law-enforcement powers were seen by the court as materially indistinguishable from the CFPB’s.

Given such a ruling (and the court’s similar decision for another single-headed independent agency just a year later), the court’s initial approach to the NLRB and MSPB in the unsigned order in Trump v. Wilcox should surprise no one.

In Wilcox, the court explained that it had temporarily paused the district courts’ injunctions because the Trump administration is “likely to show that both the NLRB and MSPB exercise considerable executive power.” For the NLRB, the court might have in mind the fact that the NLRB’s core purpose and power are to litigate unionization disputes – the power to prosecute being a quintessential executive function. As for the MSPB, the agency wields enormous power over personnel matters within other agencies, including those that are indisputably “executive” agencies, and the court has never suggested that Congress could give an independent agency such significant, direct control over executive agencies that answer to the president.

How, then, does the Federal Reserve Board fit into the court’s latest precedents?

Let’s begin with the most obvious distinction: The court struck down the CFPB’s and FHFA’s independence because those agencies lacked the multi-member commission structure at the heart of Humphrey’s “quasi-judicial,” “quasi-legislative” analysis. But the Federal Reserve Board of Governors is, of course, a multi-member board.

An agency’s multimember structure alone will not be dispositive; after all, both the NLRB and MSPB are multi-member bodies, and the court already has signaled that both are on shaky constitutional ground. More important are the considerations that underlie Humphrey’s discussion of multi-member agencies – namely, the kind of substantive power being wielded by the agency, and the character of decisions that the multi-member structure was originally intended to foster. And in both of those respects, the Fed differs significantly from other agencies.

As the court emphasized in Wilcox itself, “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.” The First and Second Banks, like the modern Fed, were created by Congress to be insulated from the president’s removal power, because they were banks, not law enforcement agencies. Similarly, the board’s main power is to control the nation’s money supply, which it does through the Federal Reserve Banks. Perhaps for this reason, in Seila itself the court explained in a footnote that the CFPB’s law enforcement powers were “in an entirely different league” from the Fed’s central banking powers.

Concerns about the Fed’s independence after Seila might reflect the fact that the Fed does have some regulatory powers. As Peter Conti-Brown describes in his 2016 book, The Power and the Independence of the Federal Reserve, the Fed’s original central banking functions gave rise to indirect regulatory powers over institutions in the federal banking system – and, eventually, the Fed would have much more direct powers to regulate and supervise banks, as legal scholars have recounted in recent articles. For example, the Fed promulgates regulations on risk management, credit evaluations, and other matters; the Fed also can bring enforcement actions.

But those powers remain subordinate to the Federal Reserve System’s overarching function: to be the nation’s central bank. Indeed, that is exactly why threats to the Fed’s independence are exponentially more fraught than threats to, say, the NLRB’s independence. It is one thing for the president to have power over law enforcement, even (in the case of the CFPB) the enforcement of financial laws. It is an entirely different thing for the president to have power over the monetary supply itself.

But even were the court to conclude that some of the Fed’s regulatory powers are, in fact, substantial “executive” powers that cannot be independent from the president, then the much simpler and more responsible remedy would be to sever those particular regulatory powers – not to terminate the Fed’s independence altogether.

Having said all that, there remains the second question that I raised at the outset: the question of timing. Given that the court’s recent decisions have come nowhere near the Fed’s independence, why did the justices decide to discuss the Fed in Trump v. Wilcox at all?

With all due respect to Kagan, the court’s discussion of the Fed hardly came “out of the blue.” The Fed has been invoked repeatedly in the NLRB and MSPB cases – not by the Fed’s critics, but in defense of the other agencies’ independence. Both Wilcox and Harris argued that a ruling against their independence would also threaten the Fed’s independence.

Similar arguments have been ventured by others, including a group of well-respected legal scholars who wrote that the “Fed’s independence rests on the same legal foundations as” the NLRB, such that even a temporary stay of the district court’s ruling against Trump “would immediately call into question the Fed’s independence from the White House, with potentially disastrous consequences for economic and financial stability.” The district court, too, endorsed this view in the NLRB litigation, shrugging off the Trump administration’s own distinctions between the Fed and other agencies.

Simply put, litigants’ own invocations of the Fed’s independence – against the backdrop of broader White House attacks on the Fed, no less – made it practically impossible for the court to silently sidestep the point. The justices addressed this in just a few lines, but it was more than enough to avoid the specter of global financial turmoil that the litigants warned might be imminent.

Ultimately, the Supreme Court is not threatening the Fed’s independence. In fact, the justices keep telling us the very opposite. As they’ve made clear, fears to the contrary are, well, far too inflated.