JD FOSTER: No, SCOTUS, The Federal Reserve Isn’t An ‘Independent Agency’

The Supreme Court was surely correct in its recent majority decision acknowledging President Trump acted within his authority in removing two holdover members of so-called “independent agencies.” But then the Supremes got too-cute-by-half with a possible carve out for the Federal Reserve.

In practice, the Federal government operates with five branches. We have the three constitutionally established branches in the legislative, judicial, and executive, and then we have “the fourth estate” of the free press, God help us.

And then there’s the fifth estate expressed in every government – the bureaucracy. Ninety years ago in Humphrey’s Executor the Court decided the Federal Trade Commission (FTC) exercised “quasi-legislative or quasi-judicial” powers and so was not wholly under the executive branch. Thus, the Court ruled a president couldn’t remove members of the FTC but for cause.

The Court’s Humphrey’s ruling was nonsensical from the outset. Agencies can only exercise authorities deriving from authorizing statutes. Those authorities may appear to reflect legislative or judicial powers, but those powers derive entirely from the authorizing statute. Thus these agencies execute Federal law and fall within the scope of the executive.

Humphreys vastly increased the independence of the so-called “independent agencies.” By insulating agency heads the Court expanded their power and pushed us down the undemocratic road of government-by-bureaucrat.

In its recent decision the Supremes seem intent on correcting the previous error except, perhaps, with regard to the Federal Reserve. In the majority opinion the Supremes implied the order may not apply to the Fed because the central bank is a “uniquely structured, quasi-private entity.” In short, the Court is suggesting the Fed is special and so deserves special treatment.

As former Justice Antonin Scalia might have observed, this is pure applesauce. Maybe the Supremes don’t understand that the Federal Reserve system is distinct from the Federal Reserve Board. More likely, they’re trying to fabricate a fairy-tale basis for granting the central bank protected status.

To be sure, the Federal Reserve system is uniquely structured, with a Board, a rate-setting Federal Open Market Committee, and the 12 regional Federal Reserve Banks, the latter run by independently chosen Presidents.

None of this is relevant to the question. All that is relevant is the Board’s seven presidentially nominated and Senate confirmed members which include a Chairman and two Vice-Chairs. There is nothing unique about this structure.

As the Supremes suggest, the system is “a quasi-private entity” in that the 12 regional banks operate independently of the Federal Reserve Board, are self-financing, and are legally “private” for some purposes. But, again, this arrangement is irrelevant to the question of whether the Board operates as part of the executive branch and thus its members may be removed by the president.

Add it up and it is clear the Court’s attempt to justify a Fed carve-out fails and that the Board falls within the scope of the executive branch and its membership should be subject to removal by the president.

Yet the underlying tension in the issue cannot be easily dismissed, that issue being the vitality of the central bank’s independence. This independence cannot be absolute, yet it must be sufficient in theory and in practice to assure that monetary policy operates protected from external political whim.

An obvious reform toward a better balance would be for the Fed Chair and Vice-Chairs’ terms to end when a new president takes the oath. No president should be saddled with a Treasury Secretary inherited from his or her predecessor. The same principle holds for the leadership of the central bank. Having installed his or her own Chair, a president would look foolish and weak sending the Chair packing early.

JD Foster is the former chief economist at the Office of Management and Budget and former chief economist and senior vice president at the U.S. Chamber of Commerce. He now resides in relative freedom in the hills of Idaho.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

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