Lev Menand and Nathan Tankus on Why Fed Independence Is Now Hanging by a Thread

The Supreme Court's Wilcox decision issued a single sentence effectively signaling it would permit presidential removal of most executive officers while carving out the Federal Reserve on grounds of history and tradition, importing reasoning from United States v. Rahimi and invoking Hamiltonian theory about independent monetary policy. The Cook case then established for-cause removal protection for Fed governors, with the practical effect of preventing Trump from easily removing Lisa Cook. The decision was 5 to 4, and Menand and Tankus note that only two of the nine justices actually believe the arrangement allowing easier firing from the FTC but not the Fed is legally tenable, making the current equilibrium unstable.

Menand argues the Court is misreading Hamilton. Hamilton explicitly said in his report on a national bank that a government bank is a bad idea and advocated for an investor-owned institution instead. The first Bank of the United States was an investor-owned commercial bank, not a government body, and no one at it was an executive officer subject to presidential removal power, making it a flawed analog for restricting removal power over the Fed's Board of Governors. The Court did not apply a history and tradition inquiry when deciding the FTC case, making its application to the Fed doctrinally inconsistent. Banking regulation as a government function did not exist at the founding, so Hamilton never argued for independent banking regulation.

The Federal Reserve Board of Governors is a seven-member government agency created in 1913, modeled on the Interstate Commerce Commission. The Board has no balance sheet of its own and conducts monetary policy through overnight interest rate policy and bank regulation. The Federal Reserve Banks are nominally outside the government and owned by member banks including JP Morgan Chase. The Board is funded by assessments on the Federal Reserve Banks rather than congressional appropriations, which Tankus explains gives it complete autonomy from White House fiscal control, since the Banks create money and assessments directed at them effectively allow the Board to direct money creation and credit its own account.

Tankus argues that the Fed had the weakest removal protections of any independent agency as a legal matter until the recent decisions, because the Federal Reserve Act did not explicitly define cause for removal, with drafters assuming the general tradition of cause-based removal was implied. Paradoxically, by eliminating removal protections at other independent agencies, the Trump administration has left the Fed as the agency with the strongest remaining protections. Economists never advocated for stronger legal protections because they treated Fed independence as a norm rather than a legal institution, relying on the Fed-Treasury Accord of March 1951 as sufficient evidence of independence, and did not consult administrative lawyers when theorizing about central bank structure.

Menand argues that the claim the Fed deserves special protection because of its importance to financial stability does not constitute a legal doctrine that could be embedded in law. He draws a parallel to Justice Story, who believed antebellum state-chartered bank notes were unconstitutional bills of credit but concluded that ruling them so would be too destabilizing, leading to a flimsy justification being used instead. Menand argues necessity can function as substantive law even for self-described formalists, and that a judicial decision can be delegitimated not only by weak legal reasoning but also by outcomes such as recession or military defeat. Chief Justice Roberts included footnote six in the Cook opinion to limit the Fed exception to the Fed as currently constituted, heading off power-by-power challenges, though Clarence Thomas does engage in exactly that power-by-power analysis, and arguments are already being made that the Fed has improper authority over regulation as distinct from monetary policy.

The deeper constitutional logic Menand advances traces back to Magna Carta and the Anglo-American tradition that preventing tyrannical executive power requires the legislature to control access to the money supply. Hamilton argued constitutional safety rests on the sword being in one hand and the purse in the other. Menand notes the Supreme Court's formalist separation of powers theory has prevented it from embracing this reasoning, because accepting it would require protecting many other federal functions beyond the Fed from presidential plenary power. Menand and Tankus argue that monetary policy and regulatory policy cannot be cleanly separated, and that monetary policy can always be recast as quasi-fiscal policy, pointing to COVID-era lending and the Silicon Valley Bank rescue as evidence that no bright line exists.

The broader constitutional crisis involves courts failing to compel the executive branch to follow the law. Menand notes that Marbury v. Madison established in 1803 that the president must follow the law and that courts can use mandamus to compel compliance, and that this principle underwrote Congress's ability to limit presidential removal power until Myers. Shadow docket decisions have sidestepped injunctions, and courts have directed plaintiffs toward money damages in the federal court of claims rather than allowing injunctive relief under the Administrative Procedure Act, limiting the practical ability to stop allegedly unconstitutional activity. Tankus identifies the political coalition driving unitary executive theory as a merger between long-time Federalist Society far-right think tanks and tech sector figures radicalized by the enforcement actions of Gary Gensler and Lena Khan, with the explicit goal of eliminating the independent administrative state created during the New Deal.