In the case of the Federal Reserve, Supreme Court appears to carve out a murky exception

WASHINGTON (AP) — The Supreme Court for the past year has repeatedly allowed President Donald Trump to fire heads of independent agencies, but it appears to be drawing a line with the Federal Reserve.

The court has signaled for months that it sees the Fed in a different light. It has said that the president can fire directors of other agencies for any reason, but can remove Fed governors only “for cause,” which is often interpreted to mean neglect of duty or malfeasance.

Last year, the court allowed President Donald Trump to fire — at least temporarily — Gwynne Wilcox, a member of the National Labor Relations Board, and Cathy Harris, a member of the Merit Systems Protection Board, but it carved out a distinction for the Fed. The two officials had argued that if Trump could fire them, he could also fire members of the Fed’s board of governors.

“We disagree,” the court said then. “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.”

That is now being put to the test in a case in front of the Supreme Court involving Trump's attempt to remove Fed governor Lisa Cook. On Wednesday during oral arguments, the court seemed inclined to keep Cook in her job.

Allowing Cook’s firing to go forward “would weaken, if not shatter, the independence of the Federal Reserve,” said Justice Brett Kavanaugh, one of three Trump appointees on the nation’s highest court.

But the court largely skirted a key issue: What, exactly, is the legal principle that protects the Fed, but not the other agencies?

Several legal experts say the justices are on shaky ground. The Fed, they argue, is similar in many ways to the Federal Trade Commission or the National Labor Relations Board, agencies Congress intended to be independent but whose officials Trump has been able to fire without pushback from the high court.

“There’s no historical grounds for distinguishing the Fed from other independent agencies that Congress has designed,” said Jane Manners, a law professor at Fordham University. “The whole argument was premised on the idea that the Fed is different. They haven’t explained exactly why.”

Peter Conti-Brown, a professor of financial regulation at the University of Pennsylvania, added, “I’ll say as a legal scholar and as a historian I think that differentiation is hocus pocus.”

Just last month, the court signaled in a separate oral argument that it would likely allow Trump to fire FTC Commissioner Rebecca Slaughter. The conservative majority on the court also suggested it would overturn a 90-year-old precedent that sharply limited the president's ability to fire top officials at independent agencies.

Chief Justice John Roberts and many of his colleagues support the “unitary executive" theory, which holds that the president should have full sway over the staffing of agencies in the executive branch.

Agency directors, like Slaughter, “are exercising massive power over individual liberty and billion-dollar industries” without being accountable to anyone, Kavanaugh said at the December oral argument.

With the Federal Reserve, however, the Supreme Court's conservative justices have applied a different view: that the Fed’s monetary policy — the setting of short-term interest rates and management of the money supply — historically hasn’t been overseen by the executive branch.

Some legal experts have likewise drawn a distinction between the Fed and other independent agencies. In a brief filed in the Cook case, Aaron Nielson, a law professor at the University of Texas, and formerly a top lawyer in Texas government, wrote that, “Whereas the modern FTC indisputably exercises executive power, the Fed's core function is monetary policy, which need not and often does not require executive power."

The First and Second Banks of the United States were nationwide banks that were the closest the United States had to a central bank in the first few decades after the nation's founding, and both “conducted early monetary policy," Nielson wrote, but weren't executive branch agencies.

But Lev Menand, a law professor at Columbia University and author of a book about the Fed, argued that the Fed does exercise executive power when it regulates the banking system. And monetary policy, when it adjusts the money supply, is part of that regulation, he said.

There are also only three types of government authority, Menand argues: legislative, executive, and judicial, and the Fed belongs in the executive category.

“There is no fourth type of government power,” Menand said. "There is no other place to locate the Fed.”

Still, the justices mostly avoided addressing why the Fed is different during Wednesday's oral argument, in part, Menand noted, because neither side pushed it. Cook's lawyers had no reason to question a distinction that appeared to favor them.

And even the government's own top Supreme Court lawyer, D. John Sauer, acknowledged that Trump could only fire Cook “for cause,” while in the other cases the White House had sought to remove officials for any reason, including policy differences. The distinction made it harder for the White House to argue that Cook should immediately be removed from office.

“There is a long tradition of having this exercise of monetary policy be exercised independent of executive influence," Sauer said. “And we don’t dispute that that’s what Congress was doing.”

Paul Clement, one of Cook's lawyers, told the justices, “it’s kind of why this case is, I think, problematic for the government because they could have come in here and said, you know, Fed, schmed, it’s not that different. This is just like the FTC.”

Instead, Clement added, “they come in and say, no, we’re going to accept that the Fed is different, at least for purposes of this case."

The Supreme Court will initially rule on the narrow question of whether Cook can remain in her position while the larger dispute over her firing is fought in the lower courts. Still, at some point it may have to issue more comprehensive rulings that could include a fuller explanation of why the justices see the Fed as different.

For now, the Fed's size and impact on the financial markets may be offering it a measure of protection.

“I don’t mean to denigrate any other agency, but there’s a reason that monetary policy has been treated differently, for lo these many years,” Clement said. “And there’s a reason that the markets watch the Fed a little more closely than they watch really any other agency of government.”