Fed Independence Risk Troubles Kavanaugh in Trump Firing Fight

A key US Supreme Court justice indicated he wants to protect the Federal Reserve’s independence as the conservative majority weighed giving President Donald Trump power to fire members of the Federal Trade Commission and similar independent agencies.

During arguments on Monday, Justice Brett Kavanaugh raised questions about the Fed several times. He asked the administration’s top lawyer, US Solicitor General John Sauer, to address opponents’ arguments that adopting a broad interpretation of Trump’s firing power in the FTC case ultimately would undermine the central bank’s independence.

US Supreme Court Justice Brett Kavanaugh

Photographer: Andrew Harnik/Getty Images

“I share those concerns,” said Kavanaugh, who was appointed during Trump’s first term.

The court on Monday signaled that the 6-3 conservative majority is likely to side with the administration in overturning a 90-year-old precedent and allow Trump to fire potentially leaders of dozens of traditionally independent federal agencies. There were a few clues that the administration faces an uphill climb when it comes to firing members of the Federal Reserve without cause.

The justices won’t hear a separate case challenging Trump’s move to oust Federal Reserve Governor Lisa Cook until Jan. 21, but the future of the central bank’s relationship with the White House loomed over Monday’s hearing.

Read More: Supreme Court Signals It Backs Trump’s Firing of Agency Leaders

Sauer acknowledged that the Supreme Court previously indicated that it considers the Fed unique in the context of allowing the president to fire members without cause. He told Kavanaugh that the government isn’t directly challenging a “for cause” removal shield that Congress put in place for the Fed. The Justice Department is arguing that courts can’t second-guess how the president wields that firing authority.

But several of the court’s liberal-leaning justices pressed Sauer on how carveouts would work under the administration’s sweeping claims in the FTC case that Congress can’t limit the president’s ability to control officials who exercise executive functions.

Kavanaugh said he also had “real doubts” about the administration’s stance that judges lack authority to reinstate wrongly fired officials. He said that would be an “end-run” around potential exceptions to a president’s firing power, such as for the Federal Reserve and certain specialty courts that deal with taxes and monetary claims against the US government.

Sauer replied that the Supreme Court had endorsed the idea that the harm of forcing an administration to take back an official rejected by the president outweighed that person’s interests.

Agency ‘Anomaly’

The Supreme Court has largely sided with the White House in firing fights this year, but indicated in May that it saw the Fed as a different creature within the US government. In an unsigned order, the justices described the agency as “a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”

In October, the justices refused to let Trump immediately oust Cook over allegations of mortgage fraud that she denies, while the legal fight over her removal plays out. It was a contrast with orders from the court’s conservative majority this year that allowed Trump’s firings at other agencies to take effect while the cases were pending.

Former Fed officials have warned that making it easier for the president to fire members could upend the US economy, since the central bank’s decision-making on interest rates is supposed to be insulated from short-term political considerations.

In the FTC case, the Justice Department has argued that the Supreme Court doesn’t need to reach the question of the Fed’s status. The government said in a written brief that it wasn’t conceding the constitutionality of the Fed’s “for cause” protection but if the justices were inclined to uphold it, “it would be an agency-specific ‘anomaly.’”

Lawyers for the fired FTC members have countered that if the Federal Reserve presented an “historical exception” to the president’s power to remove agency heads, there could be others “equally grounded in history, too,” including the trade commission.

The hearing came a day before the start of the Fed’s final policy meeting of the year, when officials are expected to lower interest rates for a third consecutive time. The Fed has faced intense pressure from Trump this year to drastically slash interest rates, often in the form of insults and scrutiny directed toward Chair Jerome Powell. The president has also openly mused about gaining a majority of his own appointees on the central bank’s Board of Governors — a prospect that would move closer to reality should Cook be ousted.

Powell this year has repeatedly emphasized the importance of Fed independence, while maintaining the central bank doesn’t engage in partisan considerations when setting policy. The Fed has said it will respect any court decision regarding Cook.

Cook has not missed a policy meeting this year and voted in favor of interest-rate cuts at each of the Fed’s two gatherings since Trump moved to fire her. Last month, she gave her first public speeches since the attempted ouster, addressing the economic outlook and financial stability.

--With assistance from Amara Omeokwe.

To contact the reporter on this story:
Zoe Tillman in Washington at ztillman2@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

Elizabeth Wasserman, Christopher Condon

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