On Wednesday, the Supreme Court will consider whether President Trump violated the Federal Reserve Act when he tried to fire Lisa Cook, a member of the Federal Reserve’s Board of Governors. Economists have raised the alarm, and Wall Street is watching, because presidential control of monetary policy would likely put upward pressure on inflation and interest rates.
But there is something far more fundamental at stake: Will the president will be able to escape one of the central constraints on executive power in our constitutional system.
The Constitution is built on an Anglo-American tradition of checks and balances. It separates control of the sword from control of the purse. To check the chief executive, who holds the sword, the framers vested in an elected legislature the “power of the purse.” Congress controls spending not merely to ensure popular consent to taxation, but also to protect liberty. As James Madison wrote in Federalist No. 58, the purse is “the most complete and effectual weapon” the people’s representatives possess to secure “a redress of every grievance” and to enact “every just and salutary measure.”
Presidential control of the central bank would threaten this design. A president with effective command of the monetary levers could impose a de facto “inflation tax,” reducing the real value of money and the federal debt while sidestepping the ordinary process of taxation. And there are other, more pressing dangers.
The White House could also direct the use of central bank tools to advance its policy priorities while evading congressional control over appropriations. The Federal Reserve today possesses authorities to buy financial assets and extend credit to banks and other depository institutions and, in unusual and exigent circumstances, nonbank entities. Because the Fed can expand its balance sheet without a hard budget constraint (it creates money at the stroke of a key), the White House could press Fed officials to repurpose its powers to confer financial benefits on favored actors or to impose costs on political opponents nearly without limit.
As abuses of these authorities would be difficult to challenge in court, de facto presidential control of the central bank balance sheet might lead to large-scale lending to private sector enterprises or foreign governments that commit to acting favorably on the president’s agenda. And because the Fed operates critical payments infrastructure — the rails that settle trillions of dollars daily — the White House could move to politicize access in ways that would chill dissent and disrupt civil society.
Although it may not look it at first glance, those issues are directly before the court in the Cook case. The court, having never addressed a presidential attempt to remove a Fed governor before, must decide for the first time what the law means when it says that a president can remove a Fed governor only “for cause.” How the justices read those two words now will determine whether the board becomes an arm of the White House.
The law, the constitutional implications and our history provide guideposts. “For cause” is a legal term of art that Congress imported from state law. The idea was to enlist the judiciary to police removals so that the executive could not replace officials for political reasons but for only serious misconduct or failure in office.
President Trump’s position is that courts should defer to virtually any stated grounds short of an explicit policy dispute. That approach would drain “for cause” of content and convert judicial review into a rubber stamp. Worse, a ruling adopting that theory would put the monetary levers within easy presidential reach.
Alternatively, the president could prevail if the court finds the asserted grounds against Ms. Cook meet the “for cause” standard. But the case rests on unproven allegations of private misconduct that took place before she joined the Fed. And the president afforded Ms. Cook no formal process — no formal notice, no formal opportunity to respond. The factual record is therefore skewed and incomplete. If presidents can fire Fed governors based on unproven allegations, the barrier between the White House and the central bank would effectively collapse.
If the president can dominate the central bank, Congress’s “power of the purse” is diluted and the incentives for abuse multiply. The result would be precisely the concentration of power that the Constitution was designed to prevent.
We don’t have to use our imagination to see how things could go wrong. The administration has already shown a willingness to politicize foreign lending and weaponize tariffs. Just last week, we learned that the Justice Department is threatening Jerome Powell, the Fed’s chair, with a criminal prosecution. Meanwhile, World Liberty Financial, a cryptocurrency business co-founded by the president, applied for a national trust bank charter, which could allow direct access to Federal Reserve payment services. If World Liberty Financial or other cryptocurrency firms run into trouble, do we want the White House deciding whether the Fed loosens the purse strings?
The court must not lose sight of the larger constitutional stakes present in this statutory scheme.
Lev Menand is an associate professor of law at Columbia Law School and the author of “The Fed Unbound: Central Banking in a Time of Crisis.”
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