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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you insight and analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud,

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Speaker 1: and on Bloomberg dot com slash podcasts. The White House

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Speaker 1: explored the legality of demoting Federal Reserve Chairman Jerome Powell

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Speaker 1: in February, soon after President Trump talked about firing him.

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Speaker 1: According to Bloomberg sources in a Bloomberg exclusive, joining me

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Speaker 1: is Robert Hocket, a professor at Cornell Law School. So, Bob,

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Speaker 1: can he legally demote the Fed chair? No, he cannot. June,

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Speaker 1: Great to be with you again. Um, we talked about

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Speaker 1: this question a little bit before in connection with just

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Speaker 1: outright firing him or removing him. Uh. The demotion question

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Speaker 1: is a little bit different than the removable question, but

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Speaker 1: but hardly different at all. And there's a very straightforward

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Speaker 1: reason for this. Um. Would you like me to give

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Speaker 1: it to you? Yes? I would. Let's start with the

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Speaker 1: start with the firing first. Sure. Yeah. The Federal Reserve

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Speaker 1: Act itself is very clear that Federal Reserve board members

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Speaker 1: can only be removed for cause. So they're appointed to

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Speaker 1: fourteen year terms with the advice and consent to the Senate.

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Speaker 1: They're removable only for cause, and cause is widely understood

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Speaker 1: not to include mere disagreements over policy. And of course,

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Speaker 1: it would be very it would be almost impossible for

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Speaker 1: things to be otherwise, right, because the whole point of

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Speaker 1: having the FED UH sort of instituted as an administrative agency,

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Speaker 1: the whole point of treating the Central Bank is something

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Speaker 1: that ought to be independent, is precisely in order to

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Speaker 1: allow for independence UH. And if a president could simply

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Speaker 1: remove fedboard members just because the destiguts with policy, there

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Speaker 1: would be no independence at all on the part of

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Speaker 1: the FED. So that's the story when it comes to

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Speaker 1: just removal of a board member altogether. Now, the demotion

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Speaker 1: question amounts to almost the same thing for the following reason.

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Speaker 1: Up until the late nineteen seventies, the president could simply

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Speaker 1: choose any given board member and just designate that board

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Speaker 1: member as the chair. And in so far as the

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Speaker 1: president could do that, you might it sort of might

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Speaker 1: be thought to sort of stand to reason as a

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Speaker 1: matter of symmetry that you know, if the president can

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Speaker 1: arbitrarily choose the chair from among the board members. Then

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Speaker 1: perhaps the President can also arbitrarily dedesignate a particular board

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Speaker 1: member as chair and replace that person by another FED

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Speaker 1: board member. One might have thought something like that, But

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Speaker 1: in the late nineteen seventies, Congress introduced additional legislation amending

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Speaker 1: the Federal Wizer Act requiring that the Senate have the

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Speaker 1: advice and consent role with respect to the naming of

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Speaker 1: the chair to a four year term and the vice

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Speaker 1: chair to a four year term as well. And we

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Speaker 1: generally understand a position that requires the advice and consent

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Speaker 1: of the Senate to fill as carrying with it and

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Speaker 1: implied for cause only restriction when it comes to to

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Speaker 1: sort of demoting or removing the person from that particular role.

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Speaker 1: So in that sense, you know, sort of demoting pale

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Speaker 1: to a mere board member from being the chair looks

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Speaker 1: almost to be the same kind of thing as a

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Speaker 1: removal would be, which is to say that it's subject

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Speaker 1: to a for cause restriction, which again would not be

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Speaker 1: understood by the courts to include disagreements over policy, Bob.

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Speaker 1: Have the courts actually ruled on this? Have there been

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Speaker 1: occasions to rule on this? There have been no occasions

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Speaker 1: to rule on this in connection with the Fed, and

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Speaker 1: that I think is because every president before the current

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Speaker 1: president had sufficient respect for our institutions, uh, and sufficient

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Speaker 1: respect for the Central Bank and the imperative of central

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Speaker 1: bank independence as never even to muck around with things

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Speaker 1: like this. The most most notorious case of a kind

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Speaker 1: of partial exception was that of President Lyndon Johnson, who

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Speaker 1: notoriously trying to prevail on then FED Chair Bill Martin

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Speaker 1: not to raise rates when the Vietnam War expenditures in

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Speaker 1: Great Society Program expenditures seemed to be generating inflationary pressure.

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Speaker 1: But even Johnson, as willful and notoriously sort of uh

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Speaker 1: self assertive as he was, didn't try anything this whack

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Speaker 1: a doodle. All he did was invite Bill Martin to

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Speaker 1: his ranch and in Texas and try to persuade him

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Speaker 1: in a golf cart, uh not to raise rates. It

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Speaker 1: didn't work. Trump, of course, um is much more um

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Speaker 1: I think, contemptuous of the norms of governance than Johnson was,

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Speaker 1: And so of course he thought about things like this.

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Speaker 1: But nobody's tried it yet, and so there isn't any

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Speaker 1: precedent any court precedent when it comes to the FED itself.

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Speaker 1: There is, however, analogous precedent in connection with other administrative agencies.

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Speaker 1: Probably the most notorious case, or the best known case,

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Speaker 1: involved the Federal Trade Commission, back when President Roosevelt not

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Speaker 1: Teddy in this case, but f d R removed UH

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Speaker 1: then chair of the Federal Trade Commission. UH. That chair

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Speaker 1: resisted the attempt to remove a student court. He died

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Speaker 1: while the case was pending. But ultimately the court found

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Speaker 1: in favor of that chair, and so all of his

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Speaker 1: back pay that he would have been entitled to went

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Speaker 1: to his estate went to his children because it was

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Speaker 1: found by the court that FDR had exceeded his authority

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Speaker 1: in removing that FDC chair. UM. So that's probably that's

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Speaker 1: a fairly well known and relatively close I suppose you

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Speaker 1: could say, closely analogous precedent. UH. And again it doesn't

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Speaker 1: look very good for Donald Trump, But Bob don't clients

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Speaker 1: asked their lawyers to look up all kinds of things

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Speaker 1: that that seemed ludicrous. And here he has a staff

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Speaker 1: at his disposal, a llegal staff. So it didn't surprise

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Speaker 1: me so much that he had asked them to research

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Speaker 1: or if he did. We don't know whether he directed

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Speaker 1: it or not, whether there was research done on this issue. Yeah,

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Speaker 1: so it doesn't It doesn't surprise me either, June. Um,

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Speaker 1: and they're too since one is, as you say, clients

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Speaker 1: will often ask their lawyers to explore various possibilities. I

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Speaker 1: think most clients, however, probably don't ask their lawyers to

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Speaker 1: explore ludicrous possibilities. So in that sense, this is surprising.

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Speaker 1: On the other hand, we are talking about Trump, and

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Speaker 1: the man is a kind of daily producer of ludicrous

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Speaker 1: actions and words and deeds. Uh. And so in that sense,

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Speaker 1: it's not surprising that Trump would have tried to do this. Right,

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Speaker 1: if anybody would, I suppose it would have been him. Um,

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Speaker 1: you know, so in that sense, Yeah, I'm with you.

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Speaker 1: I'm not that surprised. I'm nevertheless indignant and disgusted because

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Speaker 1: the very idea that the President would actually view the

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Speaker 1: FED as his plaything in this way, given how long

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Speaker 1: fought the struggle for central bank independence was, is to

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Speaker 1: me just absolutely horrifying. And I'm far from alone in this.

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Speaker 1: As you know, Um, all of the talk that Trump

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Speaker 1: was engaging in last December about possibly firing Trump was

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Speaker 1: crtuly royaling the financial markets because the finantio people who

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Speaker 1: are participants in the markets, they understand the importance of

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Speaker 1: predictability and stability, at least where monetary policy is concerned,

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Speaker 1: and the thought of this kind of stochastic, you know,

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Speaker 1: kind of random number generator president tweeting out attacks on

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Speaker 1: the feed every day didn't tend to sit well with investors. Uh.

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Speaker 1: And I think these latest revelations, you know, in an

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Speaker 1: odd paradoxical way, might actually instill a little bit more confidence, because,

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Speaker 1: um it might tell us. What it seems to tell

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Speaker 1: us is that Trump was thinking about this stuff back then,

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Speaker 1: and that his legal counsel presumably persuaded him not to

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Speaker 1: pursue this any further, because we haven't heard a lot

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Speaker 1: about it since he complains about Poul a lot still,

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Speaker 1: but we haven't heard a lot of talk about fire

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Speaker 1: in your demoting of late No, we haven't. Thank you

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Speaker 1: so much, Bob for that analysis. That's Robert Hockett. He

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Speaker 1: is a professor at Cornell Law School. Thanks for listening

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Speaker 1: to the Bloomberg Law Podcast. You can subscribe and listen

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Speaker 1: to the show on Apple Podcasts, SoundCloud, and on bloomberg

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Speaker 1: dot Com slash podcast. I'm June Basso. This is Bloomberg

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Speaker 1: giving the ding, then ended Duck the UE