Volume 109, Issue 4

Article

Article II and the Federal Reserve

Aditya Bamzai & Aaron L. Nielson

Martha Lubin Karsh and Bruce A. Karsh Bicentennial Professor of Law, University of Virginia School of Law, Professor of Law, J. Reuben Clark Law School, Brigham Young University. 

1 Aug 2024

The Supreme Court has twice held since 2020 that statutory restrictions on the President’s removal power violate Article II of the U.S. Constitution. Because such removal restrictions create a measure of policy independence from the President, these cases have prompted discussion about the future of independent agencies generally, with special attention to the Federal Reserve in particular. The Federal Reserve is the most powerful central bank on earth and, arguably, the most important independent agency in the United States. A presidential removal power over Federal Reserve officials calls into question the independence of monetary policy.

Drawing on overlooked documents and congressional debates, this Article offers a comprehensive assessment of the Federal Reserve’s constitutionality under Article II. We conclude that under the Court’s modern precedent, which requires Congress to clearly state when it wishes to restrict removal, the President likely already enjoys a great deal of statutory authority to remove the Federal Reserve’s leaders. Beyond that, in light of the Federal Reserve’s current structure and functions, the President might have constitutional authority to do so. To the extent the Federal Reserve exercises inherently “executive power”—such as initiating enforcement actions, issuing fines, and promulgating consumer-protection rules—precedent suggests that Congress cannot prevent the President from freely removing the Federal Reserve Chair, members of the Board of Governors, and perhaps other senior officials.

But Congress could render the Federal Reserve’s monetary independence constitutional. That is because the President’s power to fire the Federal Reserve’s leaders does not stem from its primary mission: monetary policy. Congress can use private bank operations to influence monetary policy, which is why the First and Second Banks of the United States were understood to be lawful even though the President could not unilaterally remove all their officers. Thus, Congress should be able to vest monetary policy in a central bank that operates independently from the President. At present, however, 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. We therefore conclude that if Congress wishes to preserve the Federal Reserve’s monetary independence, it should remove those regulatory functions that are inherently executive from the Federal Reserve’s ambit.

To read this Article, please click here: Article II and the Federal Reserve.