How To Save The Federal Reserve

investigating the caveat in Trump v. Wilcox

A big practical question for those who seek to get the Court to reject the constitutionality of independent agencies is what about the Federal Reserve? It is widely believed that some amount of federal reserve independence is important to the success of our economy. Would we have to give that up?

And it seems like the Supreme Court shares some of these concerns. In the recent opinion in Trump v. Wilcox, the Court adds a paragraph directly designed to reassure readers about the Fed:

Finally, respondents Gwynne Wilcox and Cathy Harris contend that arguments in this case necessarily implicate the constitutionality of for-cause removal protections for members of the Federal Reserve’s Board of Governors or other members of the Federal Open Market Committee. See Response of Wilcox in Opposition to App. for Stay 2−3, 27−28; Response of Harris in Opposition to App. for Stay 3, 5−6, 16−17, 36, 40. We disagree. 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. See Seila Law, 591 U. S., at 222, n. 8.

Now as Justice Kagan points out in her dissent, footnote 8 of Seila Law is not really directly supportive. Here is what the Court said there:

The dissent categorizes the CFPB as one of many “financial regulators” that have historically enjoyed some insulation from the President. See post, at 11–16. But even assuming financial institutions like the Second Bank and the Federal Reserve can claim a special historical status, the CFPB is in an entirely different league. It acts as a mini legis lature, prosecutor, and court, responsible for creating substantive rules for a wide swath of industries, prosecuting violations, and levying knee buckling penalties against private citizens. See supra, at 4–5. And, of course, it is the only agency of its kind run by a single Director.

So on what basis would the Court use the “distinct historical tradition” of the banks to preserve the federal reserve from the unitary executive?

The best work on this subject is Aditya Bamzai and Aaron Nielsen, Article II and the Federal Reserve. The good news is that they conclude that monetary policy is not core executive power, and thus “Congress should be able to vest monetary policy in a central bank that operates independently from the President.” The bad news is that they conclude that the Federal Reserve as currently structured cannot avail itself of this independence: “Congress has also tasked the Federal Reserve with sovereign functions that fall squarely under the heading of ‘executive power’ in a manner that implicates the Court’s modern Article II precedent.” (They also discuss the actual statutory details of independence right now, which are a little more complicated than most of the reporting assumes.)

Perhaps this means that the Court would have to hold the current Federal Reserve subject to the unitary executive thesis, and wait for Congress to re-establish a leaner, more independent version of the institution. But, perhaps skeptical of Congress’s ability to solve problems, the Court likely wants to do more than that. How could it? Here are three options:

Ipse dixit. Obviously the Court might just say “the Federal Reserve is different because it’s kind of like the Bank of the United States,” without really confronting Bamzai & Nielsen’s evidence that the Federal Reserve is not entirely like the national bank. That is the problem raised by the “sovereign functions” that Bamzai & Nielsen discuss. But it might also have two legal doctrines that would let it explain why it has the authority to make a Federal Reserve exception:

Severability. Perhaps the Court could hold that although, per Bamzai & Nielsen, the Federal Reserve’s current powers would render its independence unconstitutional, the independence could be achieved as a matter of severability doctrine. On this view, the Court would say that because these two aspects of the institution cannot both be reconciled with the Constitution, the Court has to decide which aspect to retain. It might retain the Federal Reserve’s independence and negate its sovereign functions rather than the other way around. This is the kind of problem the Court has confronted in other separation-of-powers cases, and I won’t say its approach is entirely consistent, but that means it might feel it has a severability option here. (For my own view on this kind of problem, see my Severability First Principles.)

Stare decisis. Alternatively, the Court might preserve Federal Reserve independence by leaning on the doctrine of stare decisis. The Court is on the verge of narrowing or overruling Humphrey’s Executor, the main precedent for the constitutionality of agency independence, because it thinks the case was just wrong. But for better or worse, the Court’s current stare decisis doctrine gives it quite a bit of discretion about whether and to what extent to overrule its precedents, even when the precedents are wrong. This means that the Court could say something like “While on a blank slate, we might agree with Bamzai & Nielsen that the Federal Reserve is also unconstitutional, we decline to overrule every aspect of Humphrey’s Executor, and we instead preserve Humphrey’s Executor as applied to this one agency, based on our view that its non-executive function is very important.”

Feel free to make other suggestions in the comments.