The Fed’s independence is unfinished business

The Supreme Court has recognized the Federal Reserve as a special case among the government's numerous independent agencies - one that requires protection from White House interference. The distinction is less than clear-cut in legal terms. As a practical matter, however, preserving the central bank's independence in monetary policy is vital and should be welcomed unreservedly.

Last week, the six conservative justices united against the court's three liberals in finding, in effect, that the president can fire members of the Federal Trade Commission (and, it follows, most other independent agencies) at will. At the same time, the liberals plus Chief Justice John Roberts and Justice Brett Kavanaugh voted to block the president's attempt to sack Lisa Cook, a Fed governor, "for cause."

As Justice Amy Coney Barrett noted in her dissent regarding the Fed, the two decisions appear to be "in serious tension." If the very idea of independent agencies violates the constitutional separation of powers, as the FTC ruling contends, what makes the Fed so special? And if the answer is that exposing the Fed to political pressure would cause great harm, why shouldn't that factor carry the same weight when it comes to other agencies?

Rather than resolving such questions, the court has swerved around them. In the FTC case, the court found that agencies, once created by Congress, are part of the executive and not a fourth branch of government. As such, they're accountable to the president, and hence to the electorate. In the second, the majority focused less on the harm that denying Fed independence would cause than on strained historic understandings about "national banks" and procedural defects in the administration's efforts to get its way.

It seems that Roberts, author of both opinions, has tried once again to strike a balance between the conservatives' understanding of strict constitutional propriety and real-world consequences.

If technical experts are replaced by incompetent partisans at agencies that regulate election financing, the environment, food safety and other critical issues, the risks of disruption or worse are clear. Congress could and should supply the remedy by exerting more control and passing less ambiguous laws for agencies to implement, but lately it's shown no such capacity.

The evidence is overwhelming that central bank independence in the conduct of monetary policy is indispensable - so overwhelming, in fact, that few politicians any longer challenge the idea. They know that destroying the central bank's credibility would immediately alarm investors, cause long-term interest rates to spike in anticipation of higher inflation, and trigger financial instability. They also know that this would work against their own short-term political interests.

Worryingly, it seems that support for this principle can no longer be taken for granted in the U.S. And regarding the Fed, the court has granted a reprieve at most. The administration didn't assert a right to dictate Fed policy, only to fire governors for serious misconduct. The block on Cook's removal pending further litigation leaves that question open.

Statutory defenses of Fed independence and accountability to Congress might ultimately be required. For now, even strained, tentative and untidy judicial protection is something to celebrate.- Bloomberg Opinion