By Jan Wolfe
WASHINGTON, Dec 13 (Reuters) – The U.S. Supreme Court’s conservative justices appear ready to endorse President Donald Trump’s power to fire a regulatory agency official despite job protections given by Congress. But they have signaled reluctance to give him similar authority over the Federal Reserve in a major case set to be argued next month.
The court, which has a 6-3 conservative majority, in May cited what it called the U.S. central bank’s unique qualities that distinguish it from other agencies also created by Congress to be independent of direct presidential control. But Trump nevertheless moved to fire Federal Reserve Governor Lisa Cook in August, setting in motion a major legal battle over presidential powers that imperils the Fed’s longstanding independence.
Trump’s targeting of Cook represents one of numerous ways he has tested the limits of presidential power since returning to office in January. The Supreme Court has let his actions take effect on removing various other agency officials as well as on immigration policy, federal layoffs, foreign aid cuts, rolling back transgender rights and other matters.
Arguments are scheduled for January 21 over the legality of Trump’s attempt to remove Cook.
ARGUMENTS IN THE SLAUGHTER CASE
The court heard arguments on December 8 involving Trump’s March firing of Rebecca Slaughter, a Democratic member of the Federal Trade Commission who sued to challenge the Republican president’s action. The conservative justices indicated through their questions that they are poised to rule that Trump did not overstep his authority.
The court in September allowed Trump to remove Slaughter while her legal challenge played out. The following month it left Cook in her post while agreeing to hear arguments in that case.
Based on the arguments in the Slaughter case, the conservative justices seem poised to strike down a 1914 law passed by Congress under which FTC commissioners can be removed by a president only for “inefficiency, neglect of duty or malfeasance,” not policy differences. Such a ruling could empower presidents to fire the heads of other agencies that Congress sought to make independent, overturning a 1935 Supreme Court precedent in the process.
The 1913 law passed by Congress creating the Fed provided similar tenure protections, and the justices appear to be worried about creating a new legal framework that would let presidents remove Fed officials over mere policy differences. Lawmakers and economists in both parties have long viewed Fed independence as crucial to preventing monetary policy decisions like setting interest rates from being subject to political whims.
Cook was appointed by Democratic former President Joe Biden. In announcing his decision to fire her, Trump said he was doing so for cause, accusing her of mortgage fraud before taking office, an allegation that Cook denied and called a pretext to oust her for her monetary policy stance.
In an earlier case, the Supreme Court in May allowed Trump’s firing of a member of the National Labor Relations Board to take effect. But in its order doing so, the court said the action should not be interpreted as granting the president similar power to remove Fed officials.
“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 order stated, referring to two iterations of a U.S. central bank early in the nation’s history.
Justice Brett Kavanaugh, a conservative who has long sought to rein in federal agencies, has suggested in the past that the Fed enjoys a special status within the government.
In a 2009 law review article that Kavanaugh wrote while serving on a regional federal appeals court, he asserted that “in some situations it may be worthwhile to insulate particular agencies from direct presidential oversight or control – the Federal Reserve Board may be one example, due to its power to directly affect the short-term functioning of the U.S. economy by setting interest rates and adjusting the money supply.”
‘THE CHOPPING BLOCK’
During the arguments in the Slaughter case, her lawyer said the Trump administration’s legal theories would put Fed independence “on the chopping block.” Kavanaugh repeatedly asked U.S. Solicitor General D. John Sauer about that.
“The other side says that your position would undermine the independence of the Federal Reserve and they have concerns about that, and I share those concerns,” Kavanaugh told Sauer, who argued for Trump’s administration.
Sauer responded that the Fed is unique, quoting the court’s May order. Sauer added that Trump’s administration is not currently challenging the tenure protections for Fed officials, with Trump contending the Cook firing was for cause.
In the Slaughter case, on the other hand, Trump did not claim to have cause to fire her, instead saying she did not align with his political agenda. Because of these factual distinctions, the two cases raise different legal issues.
“The court clearly sees the Fed as special,” said Peter Margulies, a law professor at Roger Williams University in Rhode Island. “I think the court is convinced that an independent Federal Reserve is crucial to a workable government.”
“There is a longstanding tradition of regulation of the public debt that goes back to the founding (of the United States), and I think the court appreciates that,” Margulies added. “The appeal to history and tradition means a lot to this court.”
The U.S. Chamber of Commerce pro-business lobbying group argued in a legal brief that the Fed is different than other independent agencies, so a ruling favoring Trump in the Slaughter case need not threaten central bank independence.
The Chamber of Commerce argued that there is a long history of U.S. monetary policy being set by commissions that operate outside of presidential control like the Sinking Fund Commission, a body created by Congress in 1790 to manage and repay the nation’s Revolutionary War debt.
For this reason, the group argued, the authors of the Constitution would not have objected to Fed independence.
Some legal experts have said this view distorts the Fed’s history and structure.
Andrea Katz, a professor at Washington University School of Law in St. Louis, said the court’s eventual ruling in the Slaughter case likely will create an exception for the Fed. But Katz said the justices have not articulated a principled legal rationale for doing so.
“As a historical matter, the so-called ‘Fed carve-out’ is intellectually indefensible,” Katz said. “The Federal Reserve System is run by a board that, in practice, looks just like any other multi-member commission.”
“A preference for Fed independence is somehow assumed by Kavanaugh,” Katz said, “but not explained.”
(Reporting by Jan Wolfe; Editing by Will Dunham)
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