Author: Benjamin Dinovelli
Abstract:
The Federal Reserve is arguably the most powerful administrative agency that has ever existed in the United States. Its administrative actions influence every facet of life: The cost to buy a new home or car, attend school, and build houses and infrastructure. Given its significant powers and responsibilities, the Federal Reserve has long had policy independence from the Executive branch—mainly because the Federal Reserve Act prevents the President from firing Federal Reserve officers at will. But President Trump has fired officers with similar removal protections across the government. His Administration argues that these removal protections are unconstitutional. And it appears the Court may agree based on its view of Article II of the Constitution. If the Court does so, it raises a natural follow-up question: What about the Federal Reserve and its independence?
In response, many have argued that such concerns are overblown: The Court can create an exception for the Federal Reserve. Indeed, the Court in Trump v. Wilcox recently indicated it may do so. It claimed that the Federal Reserve was “a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.” This Article argues that such an exception is illogical. No historical basis exists: The Federal Reserve is not sufficiently analogous to any Founding-era entity, including the First or Second Banks of the United States or the Sinking Fund Commission. None of them conducted discretionary monetary policy. No functional basis exists either: The Federal Reserve exercises executive power. And no other constitutional provision clearly justifies its independence. It is ultimately not meaningfully different than any other administrative agency. The Court should tread carefully before growing the removal power further. Reducing agency independence exposes the Federal Reserve to material risk.