HOW safe is US Federal Reserve chair Jerome Powell’s job? After President Donald Trump threatened to fire him several weeks ago, Powell upped the ante by declaring that he would refuse to resign if Trump tried to get rid of him, effectively drawing a line in the sand.
Conventional wisdom holds that the president cannot fire him. That argument, however, has never been tested by reality and may not hold up. Like other norms that Trump has violated, this one is more fragile than it might first appear. The history of “independent” agencies like the Fed suggests their autonomy rests on custom and tradition rather than bedrock law.
The Constitution is explicit that the president has the power to appoint “officers of the United States,” but it is notably silent on the question of whether the president can remove those officers. This omission led to a lengthy debate when Congress first convened in 1789.
The catalyst for controversy was legislation creating the Foreign Affairs Department (now the State Department). Congress vociferously debated the question of who could remove the head of America’s diplomacy. Eventually, Congress narrowly passed a law that gave sole power of removal to the president.
Congress revisited the issue over subsequent decades, attempting — but generally failing — to wrest back the power to remove executive officials. In 1863, however, a bill required the advice and consent of the Senate if the president wished to remove the Comptroller of the Currency.
This pushback culminated a few years later in the Tenure of Office Act of 1867, which required Senate approval for the removal of any and all commissioned civil officers. When president Andrew Johnson fired Secretary of War Edwin Stanton, the House brought articles of impeachment for violating this legislation.
Nonetheless, the balance of power shifted back to the president in subsequent years, and in several court cases, judges upheld the commander-in-chief’s power to remove subordinates within the executive branch. So long as the bureaucratic apparatus of the executive branch remained within the clear-cut lines imagined by the founders, the power clearly rested with the president.
But that was before the invention of “independent” federal agencies, including the Fed. The Interstate Commerce Commission, or ICC, created by Congress in 1887, was the first of this new kind of quasi-executive agencies. Unlike other fiefdoms under the president’s direct control, the ICC was in but not of the executive branch. While the president could appoint its members, he could only remove them for “inefficiency, neglect of duty, or malfeasance in office.”
This language meant the president could not simply remove these individuals on a whim. He could only oust them for a reason. This gave them a measure of autonomy and job security that executive officers did not otherwise possess. Variations on these protections would cover other independent agencies that Congress created in the ensuing years.
But the language protecting appointees was not exactly the same for each agency. Some have quite explicit stipulations about the conditions that might warrant removal; others, by contrast, are rather vague. The Fed falls into this latter category.
The relevant legislation simply says that the members of the Fed Board can be removed “for cause”. While that could be read as shorthand for “inefficiency,” “neglect,” or “malfeasance,” it is not entirely clear how the courts would define “for cause”. Worse, this language only covers the board members; it does not explicitly cover the position of chair.
Peter Conti Brown, the foremost scholar of Fed independence, has pointed to the long tradition of autonomy that the central bank has enjoyed relative to other independent agencies. This is correct. Presidents have generally treated the Fed differently.
For example, when president John F Kennedy entered the White House, he asked for the resignation of the chairs of all independent regulatory institutions with the exception of the Fed.
His successor, Lyndon Johnson, actually contemplated firing his Fed chair, William McChesney Martin. According to Martin’s biographer, attorney general Nicholas Katzenbach told Johnson “termination for cause” did not include mere disagreement, and that there had never been an attempt to fire the chairman. Johnson deferred to tradition and dropped the matter.
But Trump is not Johnson. He has shown no deference to tradition and custom. If anything, his short political career has been built on a promise to destroy traditions — the more controversially and dramatically, the better.
If Trump fired Powell (or for that matter, any member of the independent agencies) the conflict would inevitably end up in the courts. Unfortunately, there’s very little case law on the question of what precisely amounts to “cause” in such instances.
The closest the courts came to defining this was during a conflict between president Franklin D Roosevelt and an appointee of his predecessor, Herbert Hoover, to the Federal Trade Commission (FTC). Roosevelt fired him simply because the two men disagreed, but the commissioner, William Humphrey, continued to come to work. Humphrey died before the case could be resolved, but his executors shepherded the case all the way to the Supreme Court.
The judges found that Roosevelt had acted purely out of political spite, and that disagreement did not rise to the level of “inefficiency, neglect of duty, or malfeasance in office,” as stipulated by the FTC’s governing statute. The court also drew a hard and fast distinction between executive officers under the direct control of the president (for example cabinet heads) and the officers of independent agencies.
And yet, as the Bloomberg Opinion columnist Cass Sunstein and his fellow legal scholar Lawrence Lessig observed in a 1994 law review article, the court “has not said what ‘good cause’ means. The Court has also failed to define “inefficiency, neglect of duty, or malfeasance in office ... There is no controlling judicial decision on how ‘independent’ the independent agencies and officers can legitimately claim to be”.
It is perhaps inevitable that this legal question will eventually get settled in the Supreme Court. If and when it does, it is likely that the judges may end up reading a law review article from 2008 that addressed this precise issue.
In it, the author expressed profound scepticism of the idea that the heads of independent agencies should be immune from removal. “Why shouldn’t someone have the authority to fire such persons at will? And if anyone is to possess that power, it must be the president.” Still, he conceded that there might well be exceptions to the rule, foremost among them the Fed.
The author of the article? Then-Judge Brett Kavanaugh, a Trump nominee for the Supreme Court. — Bloomberg