Jerome Powell Image Credit: AFP

Washington: Just because President Donald Trump appointed the boss of the US central bank doesn’t mean he can easily get rid of him.

Should Trump — as he’s recently discussed with aides, according to Bloomberg News — seek to fire Federal Reserve chairman Jerome Powell, he’s likely to set off a thorny legal battle, and one he may well lose.

The Federal Reserve Act stipulates that the president can only remove a Fed governor — and Powell is also a governor — “for cause.” But Powell’s defences run deeper, resting with how the US Constitution assigned powers to the branches of government and how courts interpret divisions between them.

Perhaps most importantly, the Fed was created by Congress with the purpose of carrying out duties that lay under the authority of the legislature, namely the constitutional power “to coin money” and “regulate the value thereof.”

In addition, even as it granted the president the ability to name the bank’s leadership, Congress wrapped those positions with two additional protections: Senate confirmation and fixed terms. Those have been interpreted by the courts as limiting the president’s authority to dismiss his own appointments in order to grant an agency greater independence.

No president has ever sought to fire a Fed governor, but several cases could serve as tests for how well Powell could find shelter in the courts. The key case may be one brought against President Franklin Roosevelt over his firing of William Humphrey, a member of the Federal Trade Commission (FTC), in 1933.

‘Quasi-legislative’ agency

The Supreme Court’s unanimous ruling in favour of Humphrey recognised the FTC as a “quasi-legislative” agency “to carry into effect legislative policies.” For those reasons, it found the FTC “cannot in any proper sense be characterised as an arm or an eye of the executive.”

The ruling went on say that the agency’s independence from executive control was expressed, in part, in the terms of its leadership. “It is quite evident that one who holds his office only during the pleasure of another cannot be depended upon to maintain an attitude of independence against the latter’s will,” Justice George Sutherland wrote in the decision.

In other words, Roosevelt had no authority to simply fire Humphrey, an official at a non-executive agency.

All that stands as protection for Powell even before considering the “for cause” language of the Federal Reserve Act, which is its own bulwark.

That provision has generally been interpreted by courts to require the president to show “inefficiency, neglect of duty or malfeasance in office,” the very language included in the 2010 law that Congress passed to create the Consumer Financial Protection Bureau.

While some scholars have suggested there’s still ambiguity when the law, like the Federal Reserve Act, isn’t that explicit, the Fed’s former general counsel Scott Alvarez believes governors are firmly protected.

“It’s clear the president cannot remove a governor from the Board of Governors, including the chair, except for cause,” he said. “And cause means malfeasance, criminal activity or some other bad behaviour, not differences in policy.”

There is, however, another avenue Trump could pursue with little precedent to lean on. As Peter Conti-Brown, a Fed historian at the University of Pennsylvania, has pointed out, Trump could seek to remove Powell from the office of chairman without firing him as a governor. The Federal Reserve Act gives the president separate authority to name the chair and vice-chairs, but without mentioning anything about their removal.

Senate confirmation

Alvarez says Powell would still be protected in such an instance because of how Congress altered the law four decades ago. Up to that point, the president simply named the Fed chairman from among governors already confirmed by the Senate. But in 1977, lawmakers amended the act, requiring the Senate to confirm chair and vice-chair nominees for four-year terms separate from the confirmation of their governorships, which run as long as 14 years.

Alvarez said the courts would likely interpret the 1977 change as removing not only the president’s unilateral authority to name the chair, but also to dismiss without cause.

Trump’s top economic adviser, Lawrence Kudlow, appeared to acknowledge this point in remarks he made November 1 when he was asked by a reporter if Trump might remove Powell from the chairmanship and leave him on the Board of Governors.

“To my knowledge, no,” Kudlow said. “By the way, it would be an impossible task,” he said, adding, “a Fed chair can only be removed for cause.”

In either case, Trump risks throwing the country’s central bank into a state of deep uncertainty over its leadership until the issue were resolved definitively in the courts. Though that assumes Powell, or another party, chooses to challenge his dismissal, rather than walk away to lessen the potential chaos.