On Monday, the 8th, Eastern Time, the U.S. Supreme Court signaled a potential reshaping of the federal power structure, raising concerns about whether the Federal Reserve, which prides itself on being free from political influence, can maintain its independence.
During oral arguments regarding former President Trump's dismissal of Federal Trade Commission (FTC) Commissioner Rebecca Kelly Slaughter, the conservative majority of the Supreme Court questioned a 90-year-old precedent that protects independent federal agencies, suggesting support for presidential control over dozens of traditionally independent federal agencies.
At the heart of this debate is the fate of the 1935 Humphrey's Executor case, which established job protection mechanisms for the FTC and paved the way for the proliferation of independent agencies within the federal government. Overturning this precedent would impact multiple government agencies regulating labor relations, consumer product safety, transportation safety, and employment discrimination.
The six conservative justices of the Supreme Court expressed that the real concern is that Congress created agencies exercising executive power without accountability to the president. However, one conservative justice, Brett Kavanaugh, indicated that he has &#34;concerns&#34; about undermining the independence of the Federal Reserve, hinting at reinforcing the exception that the court seemed to establish for the Federal Reserve in May of this year.
This statement did not fully alleviate market concerns about the Federal Reserve's independence. The court is set to hear the case regarding Trump's dismissal of Federal Reserve Governor Lisa Cook on grounds of alleged mortgage fraud in January next year, and the judicial leanings observed in the latest debate may foreshadow the outcome of the Cook case.
<h2>Conservatives Question the Constitutionality of Independent Agencies</h2>
During the nearly two-and-a-half-hour debate on Monday, the conservative justices of the Supreme Court formed a majority and displayed a clear inclination in their positions.
Conservative Justice Neil Gorsuch described the Humphrey's Executor case as &#34;improperly reasoned,&#34; stating that &#34;there is no such thing as a fourth branch of government in our constitutional order—one that has quasi-judicial and quasi-legislative powers.&#34; He clearly hinted at voting to overturn the precedent.
Chief Justice John Roberts referred to this precedent as a &#34;withered shell,&#34; believing it no longer holds practical significance due to the significant changes the FTC has undergone in the past 90 years. He stated that the Supreme Court in 1935 &#34;was faced with an agency that had almost no executive power, which may be why they were able to garner such broad support in the court at that time.&#34;
Justice Brett Kavanaugh echoed the arguments of those opposing independent agencies, stating that these agencies are not accountable to the public. &#34;They are not elected like Congress and the president, yet they wield enormous power over individual freedoms and industries worth billions of dollars,&#34; he said. However, Kavanaugh emphasized earlier that he holds a different view regarding the Federal Reserve.
Justice Amy Coney Barrett questioned Deputy Attorney General D. John Sauer, representing the government, stating, &#34;In my view, there are very difficult questions about where the limits of your logic lie.&#34; She and other justices repeatedly discussed with Sauer what limitations the court might impose if the ruling supports Trump, including exemptions for the Federal Reserve and major adjudicative bodies like the Tax Court
<h2>Liberal Justices Warn of Power Imbalance</h2>
Three liberal justices of the Supreme Court issued strong warnings against overturning long-standing job protection mechanisms.
Justice Elena Kagan told the attorney representing the Trump administration that the government's position would mean &#34;the president wields enormous, unchecked, and unrestrained power,&#34; allowing not only the enforcement of laws but also the ability to create laws through legislative and adjudicative frameworks.
Justice Sonia Sotomayor questioned whether the court had ever overturned such long-standing precedents that significantly impact government operations. She stated, &#34;You are asking us to dismantle the structure of government, stripping Congress of its ability to protect its ideals—that is, a government structured more effectively with some independent agencies.&#34;
Amit Agarwal, the attorney representing Slaughter, argued that independent agencies have been part of the national governance structure since 1790. &#34;Any abstract theory that would erase so much history and precedent should be unacceptable,&#34; he said. However, this argument seemed to lack sufficient support in the conservative-dominated court.
Legal expert Kevin King predicted that the court would overturn rather than merely further restrict the Humphrey's Executor precedent, meaning Trump could fire heads of the FTC and similar agencies. However, he believed Kagan's inquiries about the potential far-reaching impacts on other agencies might influence the court's reasoning.
<h2>Trump's &#34;Unitary Executive Theory&#34;</h2>
Trump's legal team fully adopted the conservative &#34;unitary executive theory,&#34; which asserts that the president has exclusive authority to exercise executive power under Article II of the Constitution, including the power to make regulatory decisions.
Deputy Attorney General Sauer stated during the debate, &#34;The practical consequence here is that humans exercise enormous government power, having great control over individuals and businesses of all sizes, but ultimately are not accountable to the president. This is a power vacuum.&#34; He argued that a ruling supporting the government would not be catastrophic, &#34;In fact, our entire government will move towards accountability.&#34;
The Justice Department believes that even if the interpretation of the FTC from 1935 is correct, it no longer applies, especially since they also questioned the precedent from that time. Sauer told the justices, &#34;This was seriously erroneous at the time of the ruling.&#34;
After taking office in January, Trump announced that all federal agencies were under his control. In a speech to Congress in March, he stated, &#34;The days of unelected bureaucratic rule are over.&#34; In the same month, Trump fired two Democratic members of the FTC's five-member commission, Slaughter and Alvaro Bedoya. He had previously removed two Democratic members from the Federal Labor Relations Board and later fired three Democrats from the Consumer Product Safety Commission.
The Supreme Court allowed these dismissals to continue in its ruling that Congress's authority to limit the reasons for the removal of regulators to &#34;inefficiency, neglect of duty, or malfeasance&#34; remained in effect. Business interest groups, including the U.S. Chamber of Commerce, submitted briefs to the court supporting the government's dismissal of Slaughter
<h2>The Independence of the Federal Reserve Faces a Test</h2>
A key issue pending in the Slaughter case is whether the Supreme Court will take a different stance on the Federal Reserve Board. Earlier this year, when issuing a temporary ruling regarding the dismissal of Labor Commission members without cause, the justices hinted that they might treat the Federal Reserve differently.
On May 22, the court ruled that Trump could temporarily remove officials from two other agencies, reasoning that these agencies seemed to be performing executive functions belonging to the president. However, in a brief footnote, the court stated that the Federal Reserve might not be affected by this ruling, referring to it as a &#34;structurally unique quasi-private entity,&#34; distinct from other independent agencies.
However, this distinction seems difficult to justify from both sides. The Federal Reserve also regulates banks—this responsibility falls under the traditionally defined executive functions. The dismissed FTC commissioner Slaughter expressed skepticism in an interview: &#34;There is no exception in the Constitution that says 'unless it involves finance.' This doesn't make sense substantively, as the FTC's work also significantly impacts financial markets.&#34;
Liberal justices on the court also do not agree with this distinction. Justice Elena Kagan sarcastically referred to this exception as a &#34;tailored Federal Reserve exception&#34; in her dissenting opinion in May, aimed at avoiding market disruption. She wrote on behalf of three justices appointed by Democrats that the independence of the Federal Reserve &#34;is based on the same constitutional and analytical foundations as other agencies.&#34;
The Supreme Court will hear the Cook case in January next year. The Trump administration accuses Cook of fraudulently listing properties in Michigan and Georgia as &#34;primary residences&#34; to obtain better terms when securing a mortgage in 2021. Sauer argues that &#34;Cook's significant, obvious, and unexplained false statements on financial documents create a serious appearance of misconduct, undermining public confidence in his authority as a financial regulator.&#34;
Cook and his lawyers claim the accusations are baseless, accusing the government of taking statements out of context and failing to prove fraudulent intent. Cook argues that supporting Trump's ruling &#34;would destroy the long-standing independence of the Federal Reserve, disrupt financial markets, and lay the groundwork for future presidents to directly guide monetary policy based on political agendas and election schedules.&#34;
Scott Alvarez, who served as the Federal Reserve's General Counsel for 13 years, stated that the connection between the two cases almost ensures that the judges will consider both the Slaughter and FTC cases alongside the Cook and Federal Reserve situations. &#34;I suspect they will hear the Slaughter case first, but will not make a ruling before hearing the Cook case, and then will rule on both cases together,&#34; he said.
A ruling in the Slaughter case is expected by the end of June next year. This decision will not only determine whether Trump can permanently remove Slaughter from office but will also provide key insights into the fate of Federal Reserve Governor Cook and could fundamentally reshape the power structure of the U.S. federal government

The six conservative justices of the Supreme Court questioned the 1935 Humphrey's Executor case, which has protected independent federal agencies for nearly 90 years, expressing real concerns about Congress creating agencies that exercise executive power without accountability to the President. The three liberal justices of the Supreme Court issued strong warnings against overturning the long-standing job protection mechanism. However, conservative Justice Kavanaugh stated that he has "concerns" about undermining the independence of the Federal Reserve

- The U.S. Supreme Court's recent oral arguments signal a potential shift in federal power dynamics, raising concerns about the independence of the Federal Reserve.  
- The court is questioning the long-standing precedent that protects independent federal agencies, which could impact various regulatory bodies if overturned.  
- The upcoming ruling on the case involving FTC Commissioner Rebecca Kelly Slaughter may also influence the fate of Federal Reserve Governor Lisa Cook, highlighting the broader implications for government structure and accountability.

Wallstreetcn

Will the 90-year precedent be overturned, and is the independence of the Federal Reserve at stake? The U.S. Supreme Court hints at supporting Trump's dismissal of FTC commissioners