Can Trump fire Powell? The attitude of the U.S. Supreme Court is very important!

The Zhitong Finance APP noted that as speculation intensifies regarding whether U.S. President Donald Trump might attempt to fire Federal Reserve Chairman Jerome Powell, Powell insists that U.S. law protects him and other Federal Reserve governors from being dismissed before their terms end.

He is correct, but the precedent set by the U.S. Supreme Court protecting Powell and dozens of other federal agency heads from being fired at the president's discretion has come under attack from critics who argue that this 90-year-old decision is not applicable to the modern administrative state.

These skeptics include Republican-appointed federal appellate judges who earlier this year urged the Supreme Court to reconsider the president's power to dismiss agency heads. These critics contend that today’s federal agencies are far more powerful than the Federal Trade Commission at the heart of the 1935 Supreme Court case "Humphrey's Executor v. United States," which was during the New Deal era.

The "Humphrey's Executor v. United States" case held that Congress did not violate the constitutional principle of separation of powers by enacting provisions in the Federal Trade Commission Act that protect FTC commissioners from being dismissed without just cause. This decision created an exception to the president's constitutional removal power, stating that heads of independent, bipartisan, multi-member agencies "do not perform political duties nor do they perform executive duties."

Critics of this decision, including Supreme Court Justice Clarence Thomas, assert that because today’s federal agencies engage in executive functions, the bureaucrats overseeing these agencies are not protected by the reasoning in Humphrey's Executor.

So far, the Supreme Court has refused to overturn the old precedent. Last month, the justices had an excellent opportunity in a case questioning whether the U.S. Consumer Product Safety Commission is constitutional. The regulations establishing consumer safety organizations, like those for many other federal agencies, prohibit commissioners from being dismissed without just cause.

Challenger attorneys, including former Trump White House advisor McGahn, urged the justices to restore the president's power to dismiss federal agency heads at will under the U.S. Constitution. Their petition received support from the U.S. Chamber of Commerce, several Republican state attorneys general, and a long list of conservative nonprofit organizations.

However, in October, the Supreme Court rejected this request, and the precedent remains temporarily intact. The Federal Reserve has long been viewed as an agency protected by the 1935 precedent, which is likely why Powell, who holds a law degree from Georgetown University, stated last week that firing him or other Federal Reserve governors is "not permitted by law."

Nevertheless, there are ample reasons to doubt the future viability of the "Humphrey's Executor" precedent.

First, it is unclear why the Supreme Court rejected the case involving the Consumer Product Safety Commission last month. The U.S. Department of Justice, in its brief opposing Supreme Court review, pointed out that the groups challenging the consumer safety organization lack constitutional standing because they are not subject to the commission's enforcement. The challengers are two research groups that filed a lawsuit over the replication costs required under the Freedom of Information Act In other words, the Supreme Court may just be waiting for a better tool to reconsider whether the "Humphrey's Executor" case is still good law. If so, the Supreme Court has already received another petition questioning the viability of that case—this case was brought by a company under investigation by the Consumer Product Safety Commission, so it won't raise the same constitutional standing issues as the case dismissed last month.

In other words, when any hypothetical dispute between Powell and a future Trump administration reaches the Supreme Court, that case may become a shadow of its former self.

On the other hand, as Harvard Law School professor and former Federal Reserve Board member Daniel Tarullo wrote earlier this year in a legal commentary, the Supreme Court may be cautious about issuing a ruling that could significantly disrupt the U.S. economy.

In his paper "The Federal Reserve and the Constitution," Tarullo hypothesizes that the justices will try to find a way to distinguish Federal Reserve governors from heads of other federal agencies, possibly by looking back at the ancestors of the Federal Reserve during the founding era of the First and Second Banks of the United States, or by citing the Federal Reserve's limited powers over private actors.

Tarullo states that given the special role of the Federal Reserve "in formulating monetary policy and stabilizing financial markets," as previously described by Justice Brett Kavanaugh, the Supreme Court may ultimately decide that the Federal Reserve is "too important to be messed with." This description comes from Kavanaugh's dissent in 2018 as a judge on the U.S. Court of Appeals for the District of Columbia Circuit in a case challenging the Consumer Financial Protection Bureau.

If Trump were to actually fire Powell, there is another uncertainty: while the Federal Reserve Act stipulates that Federal Reserve governors cannot be removed without cause, it does not explicitly state that the Federal Reserve Chair cannot be demoted at the president's will. No president has attempted to remove a Federal Reserve Chair. Even Trump backed away from private discussions about the possibility of firing Powell in 2018. However, as Tarullo points out in his paper, this reluctance is primarily due to fears of political backlash rather than the statutory text.

Therefore, under current law, theoretically, Trump's second supporter would have more reason to strip Powell of the chairmanship than to remove him from the Federal Reserve Board.

Of course, the entire discussion is hypothetical. Trump's advisors told CNN that the elected president might allow Powell to serve until the end of his term in 2026.

But speculation about a showdown between Trump and Powell lingers in the Wall Street Journal and the New York Times, highlighting the uncertainty hanging over dozens of federal agencies and commissions.

If the Supreme Court were to undermine or overturn the "Humphrey's Executor" case, Powell would merely be one of hundreds of officials whose jobs would be subject to Trump's "will."