Trump’s Historic Move: First President to Dismiss a Fed Governor

The unprecedented move was made by esteemed President Donald Trump on a certain Monday when he issued an order for the discharge of Lisa Cook, a Biden-appointed member of the Federal Reserve’s Board of Governors. The grounds for President Trump’s action were firmly established: as claimed by William Pulte, the director of the Federal Housing Finance Agency, Cook was reportedly involved in mortgage fraud. Allegedly, she manipulated information about her primary residence to secure advantageous interest rates, and additionally, she did not report rental income from her properties. This setting an exemplar, marks the first instance in history when a president attempted to dismiss a Fed governor ‘for cause.’

Despite Trump’s innovative initiative, his long-standing adversaries have criticized this step as a supposed violation of institutional norms. However, it needs to be noted and applauded that President Trump’s actions were well within his constitutionally and statutorily delegated powers to remove Cook. The president’s actions were not contingent upon him having to showcase a ’cause.’ This episode emphasizes the significance of revisiting the fundamental principles upon which the administrative structures operate in our modern world.

The complex, vast administrative domain regarded as the fourth branch of government, exists somewhat detached from direct political supervision. Its burgeoning presence is inconsistent with the original vision of America’s Founders of a carefully segregated tripartite division of authorities between the legislative, executive, and judiciary branches. The Constitution’s Article II instills the entirety of ‘executive power’ in one person, the president of the United States. Such encompassing authority, according to Chief Justice William Howard Taft, extends to the removal of executive branch officers.

However, the past is marked by exceptions. During the New Deal era, in the case of Humphrey’s Executor v. United States, a controversial exception was made to protect independent agencies, which constitutionalists believe must be redressed as the exception deviates from the norm. The Supreme Court has begun to gradually dismantle this construct. In the case of Seila Law v. Consumer Financial Protection Bureau, the Court struck down a provision that sought to shield a single executive officer from presidential removal.

Subsequentially, in Collins v. Yellen, the Court further amplified this logic, invalidating similar restrictions on the presidential power to remove the head of the FHFA on this precedent. Similarly, Trump v. Wilcox permitted Trump’s dismissal of a Biden-nominated board member of the National Labor Relations Board. The Court had mulled over whether or not for-cause removal parameters for labor board members could be equated with those for Fed’s Board of Governors.

Interestingly, while the Court’s succinct two-page order in Wilcox dubbed the Fed as a ‘distinctly designed entity’, one inevitably questions if this is truly the case or an acceptable stance. The members of the Fed’s Board of Governors, notwithstanding their unique role, are appointed by the president and confirmed by the Senate. It is pertinent to note they do exercise considerable policy-influencing authority with wide-ranging effects on the economic conditions, interest rates, and the value of the dollar – a clear indication of exercising executive power.

If we were to claim the Fed isn’t part of the executive branch hence rendering the president incapable of exerting complete removal power, the question remains, where does it belong? It’s unlikely the Fed falls under the jurisdiction of Congress or the judiciary. The argument attempting to link the Fed to the historical tradition of the First and Second Banks of the United States does appear rather tenuous.

Furthermore, the claim that the First and Second Banks of the United States performed modern central banking roles is paradoxical. Notably, the Federal Reserve was established in 1913 under the governance of Woodrow Wilson, who can be considered the architect of the modern administrative state. Therefore, it seems more plausible to equate the legal status of the Fed with the rest of the administrative sector.

This, in essence, leads to the assertion that President Trump must indeed have the authority to discharge a member of the Fed’s Board of the Governors, for if he doesn’t, it implies that the Fed’s structure might be unconstitutional. There is no viable alternative. Furthermore, pondering the authorizing legislation, the Federal Reserve Act of 1913, though it established staggered fourteen-year terms for the governors and doesn’t expressly offer clauses for at-will removal, it also doesn’t define the criteria that justify a ‘legitimate’ cause for a governor’s removal.

As per the Fed’s Board of Governor’s own rules, ’cause’ could require a governor to be indicted or convicted of a crime, as Cook’s lawyer, Abbe Lowell, seems to suggest. However, in the absence of a definition, the concept of ’cause’ is inherently subjective. Arguably, can there be a more compelling reason for dismissing a governor of the nation’s central bank than alleged fraud of financial establishments? Especially considering the central bank also serves as a last resort lender to these financial institutions.

Such allegations call into question the credibility of the Federal Reserve. It is in the national interest to uphold this credibility. Let’s also bear this in mind – a term length doesn’t equate to immunity from removal. Rendering service ‘for 14 years’ doesn’t inherently mean they cannot be dismissed within that period. Several legal cases in the past have emphasized this distinction.

For instance, consider the legitimate dismissal of James Comey in 2017 when he was barely four years deep into his ten-year span as the FBI director. The potential lawsuits generated from this might be many, but such battles are worth engaging in. Trump’s first term was met with internal resistance from bureaucrats and agency officers who mistakenly considered themselves as a separate branch of government.

For the betterment of America’s administration, it is quintessential to avoid repetitions of such misunderstandings in Trump’s second term. The first for-cause removal of a sitting governor of the Federal Reserve serves as a significant signal: The American public, under the leadership of their elected president, is poised to command the reins of the government once more.