Decisive battle in May? Can Trump take the opportunity to fire Fed Chairman Powell?

Source: Jinshi Data

According to The Economist, during the 14 seasons of the reality show "The Apprentice", Trump happily fired more than 200 contestants just because they failed their tasks or offended the wrong people.

Now in his second term as president, Trump has discovered that firing the heads of federal agencies protected by the "just cause" statute is not something that can be done with a flick of the finger as on TV.

Recently, he made an urgent application to the U.S. Supreme Court, hoping that the justices would grant him the same unlimited power to fire people in real life as on TV.

What stands in his way is a case from the administration of Franklin Roosevelt - "Humphrey's Executor v United States".

In 1933, Roosevelt tried to fire William Humphrey, one of the five commissioners of the Federal Trade Commission, because of differences over trade policy and opposition to the "New Deal" program.

Humphrey sued Roosevelt, and although he died the following year, the Supreme Court ruled in his favor in 1935. For decades, the "Humphrey case" established a principle: the president does not have unlimited power to fire.

This precedent protects the independence of administrative agencies established by Congress with "quasi-judicial" or "quasi-legislative" powers, such as the Equal Employment Opportunity Commission and the Securities and Exchange Commission.

In the spirit of the Humphrey case, the district court ruled that Trump had no authority to fire two officials appointed by Biden in 2021 and 2022, Cathy Harris (Merit System Protection Board (MSPB)) and Gwynne Wilcox (National Labor Relations Board (NLRB)).

According to the law, members of the MSPB can only be fired for "inefficiency, dereliction of duty, or serious misconduct." Members of the NLRB, on the other hand, must go through formal notice and hearing procedures and can only be fired for "dereliction of duty or serious misconduct."

Since Trump did not give any of these reasons, simply because he believed that the two would not support his policies, the court ruled that his actions were invalid.

The court said Harris and Wilcox must be reinstated. Financial markets are also closely watching their fate, although not because everyone is enthusiastic about the two institutions.

In an emergency application submitted to the Supreme Court, Trump's side called these court rulings "untenable." The application wrote that the president "should not be forced to hand over executive power to the head of an agency that runs counter to government policy, even for just one day - let alone the months it would take for the court to hear the case."

The document also pointed out that some Supreme Court rulings in recent years are gradually weakening the authority of the "Humphrey Case".

For example, in the 2020 "Seila Law v CFPB" case, the court ruled that the president could fire the head of the Consumer Financial Protection Bureau without reason. The 5-4 ruling held that the "Humphrey Case" only applies to "professional agencies with multiple members and no significant administrative power", not to agencies managed by a single head and with real power.

Sai Prakash, a law professor at the University of Virginia, believes that this "Trump v. Wilcox Case" may completely end the legal status of the "Humphrey Case".

Will Baude of the University of Chicago Law School also said that the justices would "almost certainly" end the "Humphrey case."

However, he also pointed out that such a major change may not be done directly through the Supreme Court emergency hearing channel, because the justices are usually reluctant to make far-reaching changes under such procedures. This means that the court may adopt the government's suggestion to transfer the case to the regular hearing procedure and arrange special oral arguments in May so that the case can be decided before July.

Stephen Vladeck, a law professor at Georgetown University, believes that the biggest obstacle preventing the court from overturning the "Humphrey case" is the status of the Federal Reserve, and such a ruling will have a potential impact on the Federal Reserve.

The Federal Reserve and its chairman have never been completely away from political influence. For example, Nixon asked Chairman Burns to cut interest rates before the 1972 election. Trump also regretted nominating Powell as Federal Reserve Chairman during his term. Trump also recently said he would not replace Powell until his term ends in May 2026 (his term on the board ends in 2028). But if Trump becomes dissatisfied with Powell again and Humphrey is overturned, he will have more room to fire the Fed chairman. Vladeck pointed out that the Fed's independence is based on the Federal Reserve Act, and the legal and constitutional basis for this independence is the same as the protections Harris and Wilcox enjoy. Professor Prakash believes that the Supreme Court may find a way to treat the Fed differently from other "ordinary institutions." "Everyone thinks the Fed is an exception," he said. One possible approach is that Congress could strip the Fed of its regulatory powers and retain only its monetary policy functions. A "deregulated" Fed might avoid presidential interference in its chairman.

Whether or not Congress acts, the court may find a way to avoid ruling directly on the Fed, or even carve out a separate exception for it in future cases, predicts the University of Chicago’s Baud.

Still, if the Supreme Court lists Trump v. Wilcox as a formal case in the coming weeks, it will be the second consecutive year that the court has used a Trump case as a finale to discuss the limits of presidential power. (Last year in Trump v. United States, the justices ruled 6-3 that the president enjoys broad immunity from criminal prosecution in many circumstances.)

If the conservative majority of justices once again supports Trump’s expansive ambitions for the presidency, he may further explore how far the boundaries of presidential power extend.