Why the Supreme Court Struggles With How to Insulate the Federal Reserve From Politics

The High-Stakes Battle Over Presidential Power and Agency Independence

A recent Supreme Court argument highlighted a significant constitutional dilemma: the scope of a president's power to remove leaders of independent agencies. While the administration appeared poised for a broad victory, allowing the president to fire officials without cause, the justices faced a complex hurdle. The critical question arose:

How to insulate the Federal Reserve from politicswithout undermining the president's asserted authority? This is precisely why the Supreme Court struggles with how to insulate the Federal Reserve from politics, a challenge with profound implications for the U.S. economy.

The Core Dispute: Executive Authority vs. Agency Independence

At the heart of the case is Rebecca Kelly Slaughter, a member of the Federal Trade Commission (FTC) whom President Trump sought to remove. Existing federal law mandates a reason for such dismissals. However, the Trump administration argued that the Constitution's separation of powers grants the president the inherent authority to remove these officials for any reason, or no reason at all. This stance suggests a desire for complete executive control over the FTC and other bodies Congress intended to shield from political interference.

During the proceedings, it became clear that the administration was likely heading towards a win that would expand presidential power significantly. Yet, the path to this victory was complicated by the unique position of the Federal Reserve.

The Federal Reserve: A 'Sui Generis' Challenge

The core difficulty for Solicitor General D. John Sauer, representing the Trump administration, was articulating a principled legal theory that would not jeopardize the independence of the Fed. Undermining the Fed's autonomy could trigger market instability and endanger the broader economy—a risk the justices were keenly aware of.

Kavanaugh's Concerns and the Administration's Stance

Justice Brett M. Kavanaugh, known for his long-standing concern for the Fed's independence, directly questioned Sauer on this point. Kavanaugh pressed for a clear distinction between the Federal Reserve and agencies like the FTC, noting shared concerns about the potential economic repercussions of a broad ruling.

Sauer's argument largely relied on previous, somewhat vague, court statements. He cited an earlier unsigned opinion that described the Federal Reserve as a “uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.” Sauer emphasized the adjectives “unique” and “distinct,” further describing the Fed as “sui generis” (in a class by itself) and suggesting that firing its leaders would “raise their own set of unique distinct issues.” However, a precise constitutional explanation for this uniqueness remained elusive.

As Columbia law professor Lev Menand observed, the attempt to carve out the Fed seemed to lack a truly cogent justification consistent with the president's constitutional theory. Sauer eventually suggested the court could defer judgment on the Fed's status, noting the administration hadn't directly challenged congressional limits on the president's power to fire Fed members.

The Unsettled Future of Fed Leadership

The issue of Fed independence isn't hypothetical. President Trump has previously attempted to remove Fed Governor Lisa D. Cook, alleging mortgage fraud (which she denies). The Supreme Court is set to hear arguments in her case next month. Additionally, while President Trump has mused about firing Fed Chair Jerome H. Powell to influence interest rates, he has not followed through. Historically, no president has sought to remove a Fed board member without cause.

Justice Elena Kagan highlighted the logical inconsistency, stating that “Once you’re down this road, it’s a little bit hard to see how you stop.” This underlines the difficulty in creating a coherent legal framework that grants broad removal power to the president while simultaneously preserving the crucial independence of select institutions like the Fed.

The Path Forward: Unresolved Questions and Economic Stability

The Supreme Court's deliberations underscore a fundamental tension in American governance: balancing executive authority with the need for independent institutions that can operate free from political pressure. For the Federal Reserve, this independence is vital for its ability to manage monetary policy, control inflation, and maintain economic stability.

While the court has demonstrated its capacity to simply declare the Fed “different” in past rulings, the ongoing legal challenges demand a more robust and principled distinction. The ultimate resolution will not only define the limits of presidential power but also shape the future autonomy of crucial government agencies, with significant repercussions for the nation's economic landscape.