By Alison Frankel
As speculation continues to simmer about whether US President-elect Donald Trump might try to fire Federal Reserve Chair Jerome Powell, Powell has insisted that US law shields him and other Federal Reserve governors from being removed from office before their terms are up.
He’s right — but the US Supreme Court precedent that protects Powell and the heads of dozens of other federal agencies from being fired at the will of the president is under attack by critics who contend that the 90-year-old decision does not apply to the modern-day administrative state.
Those skeptics include Republican-appointed federal appellate judges who earlier this year implored the Supreme Court to revisit the president’s power to fire agency heads.
Today’s federal agencies, these critics contend, are vastly more powerful than the New Deal-era US Federal Trade Commission at the heart of the 1935 Supreme Court opinion in Humphrey’s Executor v. United States.
Humphrey’s Executor held that Congress did not violate constitutional separation of powers doctrine when it enacted provisions in the Federal Trade Commission Act that shielded FTC commissioners from being fired without good cause. The decision carved out an exception to the president’s constitutional removal power for the heads of independent, bipartisan, multimember agencies that perform “neither political nor executive duties.”
Critics of the decision, including Supreme Court Justice Clarence Thomas, assert that because today’s federal agencies engage in executive duties, the bureaucrats in charge of the agencies are not protected under the reasoning of Humphrey’s Executor.
So far, the Supreme Court has declined to repudiate its old precedent. The justices had a prime opportunity last month in a case challenging the constitutionality of the US Consumer Products Safety Commission. The statute that created the consumer safety group, like those creating so many other federal agencies, prohibits commissioners from being removed without good cause.
The challengers’ lawyers, including former Trump White House counsel Don McGahn of Jones Day, called on the justices to restore the president’s power under the US Constitution to fire federal agency heads at will. Their petition, as I’ve reported, garnered backing from the US Chamber of Commerce, several Republican state attorneys general and a long list of conservative nonprofits.
But in October, the Supreme Court rejected the petition, leaving Humphrey’s Executor in place for now. The Federal Reserve has long been cited as an agency whose governors are protected under the 1935 precedent — which is presumably why Powell, who has a law degree from Georgetown University, said last week that firing him or other Fed governors is “not permitted under the law.” (The Federal Reserve did not immediately respond to a query.)
Still, there are good reasons to wonder about the future viability of Humphrey’s Executor precedent.
We don’t know, for one thing, why the Supreme Court turned down the Consumer Products Safety Commission case last month. The US Justice Department argued in its brief opposing Supreme Court review that the groups challenging the consumer safety group’s structure lacked constitutional standing because they were not subject to the commission’s enforcement. (The challengers, two research groups, sued over copying costs related to a Freedom of Information Act request.)
The Supreme Court, in other words, may simply be waiting for a better vehicle to reconsider whether Humphrey’s Executor remains good law. If so, another petition already at the Supreme Court questions the viability of Humphrey’s Executor — and that case was brought by a company under investigation by the Consumer Products Safety Commission, so it does not raise the same constitutional standing concerns as the case rejected last month.
Humphrey’s Executor, in other words, could be a shadow of its former self by the time any hypothetical dispute between Powell and the future Trump administration reaches the high court.
On the other hand, as Harvard University law professor and former Federal Reserve Board member Daniel Tarullo wrote in a law review article earlier this year, the Supreme Court may be leery of issuing a decision that risks a major disruption to the US economy.
Tarullo hypothesized in the paper, “The Federal Reserve and the Constitution,” that the justices will try to find a way to distinguish between Federal Reserve governors and other federal agency heads, perhaps by looking back to the Federal Reserve’s Founding-era ancestry in the First and Second Banks of the United States or perhaps by citing the Federal Reserve’s limited power over private actors.
It may be, Tarullo said, that the Supreme Court ultimately decides that the Federal Reserve is “too important to mess with,” in light of what Justice Brett Kavanaugh has previously described as its “special functions in setting monetary policy and stabilizing the financial markets.” (That description came from Kavanaugh’s 2018 dissent, as a judge on the US District of Columbia Court of Appeals, in a case challenging the Consumer Financial Protection Bureau.)
There is one wild card if Trump actually fires Powell: Although the Federal Reserve Act says Fed governors cannot be removed except for good cause, it does not specifically shield the Fed chair from being demoted at the will of the president. No president has tried to depose a Federal Reserve chair. Even Trump backed away in 2018 from what Reuters described as private discussions about the possibility of firing Powell. But that reluctance, as Tarullo pointed out in his paper, is mostly for fear of political backlash, not because of the statutory text. – Reuters
