Supreme Court Reassures Markets by Protecting the Federal Reserve From Politically Motivated Personnel Changes

The U.S. Supreme Court on Thursday reassured financial markets and central bankers alike by signaling that the Federal Reserve remains immune to politically motivated personnel changes

The U.S. Supreme Court on Thursday signaled that the Federal Reserve remains immune to politically motivated personnel changes, a move that will likely reassure financial markets and central bankers.

What Happened: In a 7-2 ruling that grants President Donald Trump broader authority to remove federal officials, the Court upheld the recent dismissal of two federal labor board members by Trump.

Crucially, the Court's opinion also signaled that the Fed stands separate from other government agencies, structuring it as a “uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks.”

That brief statement helps quell fears that Trump might try to fire Federal Reserve Chair Jerome Powell, a move that would likely rattle global financial markets.

See More: Jerome Powell Says Fed Is Prepared To Adjust Rate Hikes If Needed

Trump's frustrations with Powell, and his threat to fire him, have been well-documented. Throughout his first term, Trump lashed out at the Fed Chair for not cutting interest rates more aggressively.

suggesting on several occasions that he could remove Powell.

Recently, Trump has once again floated the idea, criticizing Powell over the Fed's stance on rate adjustments despite signs of slowing inflation.

"They say no, but I can fire Jerome Powell," Trump said last week during a meeting with economists at the White House.

However, Thursday's Supreme Court ruling makes it clear that while the president may have expanded authority over traditional independent agencies - like the National Labor Relations Board (NLRB) and the Merit Systems Protection Board (MSPB) - the Federal Reserve is different.

"Congress may create independent administrative agencies, and it may decide, in structuring those agencies, to place limits on the president's power to remove agency officials," Kagan wrote in the majority opinion, which was joined by Chief Justice John Roberts and Justices Clarence Thomas, Samuel Alito, Neil Gorsuch, and Brett Kavanaugh.

"But Congress's decision to create such an agency is fundamentally a matter of "political judgment' and policy preference," Kagan added.

"That judgment is expressed in the statutes Congress enacts and in the structure of the administrative institutions Congress creates."

The ruling saw Justices Elena Kagan, joined by Justices Sonia Sotomayor and Ketanji Brown Jackson, dissent sharply, arguing that the decision undermines decades of legal precedent and stated congressional intent by allowing presidents to dismiss agency heads without cause.

"The implications of today's ruling are sweeping and serious," Kagan wrote in her dissenting opinion.

"The Court's holding eviscerates bedrock principles of administrative law and threatens to disrupt the stability of critical federal institutions."

Kagan highlighted the risk of destabilizing agencies whose work impacts millions of Americans - and indirectly, the economy - alluding to the potential chaos a political shake-up at the Fed might trigger.

"The upshot is an economically disastrous no-win scenario: Continue paying outlays that threaten to bankrupt the Treasury, or shut down large swaths of the government and devastate the lives of millions of Americans," Kagan warned.