Trump Can Fire a Lot of People. What's Special About the Federal Reserve?
"The Federal Reserve is a uniquely structured, quasi-private entity," the Supreme Court wrote in a ruling this year.
In his second term, President Donald Trump has tried to fire numerous federal officials, with varying degrees of success. Courts have occasionally intervened, raising questions about the extent of the president's power to terminate employees without cause and which agencies he can and cannot touch. But Supreme Court justices seem unanimous in their belief that the Federal Reserve is its own creature.
In January, Trump fired Gwynne Wilcox, chair of the National Labor Relations Board (NLRB). This was the first time a member was removed since the board was established in the 1930s. Wilcox sued, saying her firing violated a federal law that NLRB members "may be removed by the President…for neglect of duty or malfeasance in office, but for no other cause."
She also cited Humphrey's Executor v. United States (1935), in which a unanimous Supreme Court determined the president cannot remove officers from executive agencies that were created by Congress and perform "quasi-judicial and quasi-legislative" functions for any reason "other than those so specified" by statute. Wilcox contended her firing "defies ninety years of Supreme Court precedent that has ensured the independence of critical government agencies like the Federal Reserve."
After a federal district court ruled Wilcox must be reinstated, the Supreme Court granted the administration's request to stay that ruling while the case made its way through the federal appeals process. The unsigned majority found that Trump was likely to prevail, as the president "may remove without cause executive officers who exercise that power on his behalf, subject to narrow exceptions recognized by our precedents." Specifically addressing Wilcox's claim that her firing threatened agencies such as the Fed, the Court baldly stated, "We disagree. The Federal Reserve is a uniquely structured, quasi-private entity" with a "distinct historical tradition."
In a dissent, Justice Elena Kagan—joined by fellow liberal Justices Sonia Sotomayor and Ketanji Brown Jackson—took issue with the majority's invocation of the Fed.
"The majority closes today's order by stating, out of the blue, that it has no bearing on 'the constitutionality of for-cause removal protections' for members of the Federal Reserve Board or Open Market Committee," Kagan wrote. "I am glad to hear it, and do not doubt the majority's intention to avoid imperiling the Fed. But…the Federal Reserve's independence rests on the same constitutional and analytic foundations as that of the NLRB….So the majority has to offer a different story: The Federal Reserve, it submits, is a 'uniquely structured' entity with a 'distinct historical tradition.'"
Kagan accuses her fellow justices of undercutting Humphrey's even as they created "a bespoke Federal Reserve exception." But she seems less troubled by the Fed's protective shell than by the fact that it is the only governmental agency insulated from executive meddling.
Indeed, the Fed exists somewhere between government and the private sector. It was established by Congress, it exerts control over the entire financial system, and its members are appointed by the president and confirmed by the Senate. But once confirmed, those members make decisions free from direct oversight or interference from any branch of government.
Certainly, it would be bad for Congress—or worse, the executive branch—to have direct influence on setting interest rates, as the Fed does now. But no matter how broad the president's powers of employment termination, it's no comfort that the Supreme Court believes the Fed should be insulated from oversight.
This article originally appeared in print under the headline "What's Special About the Fed?."
