Lev Menand and Nathan Tankus on Why Fed Independence Is Now Hanging by a Thread

What It Covers

Columbia law professor Lev Menand and economist Nathan Tankus analyze the Supreme Court's five-to-four decision carving out Federal Reserve independence from the broader Seila Law ruling that grants presidents unlimited removal power over agency heads, examining why only two of nine justices genuinely support this arrangement and what it means for Fed stability.

Key Questions Answered

• •The Hamilton Misreading: The Supreme Court's Fed carve-out cites Alexander Hamilton's support for independent monetary policy, but Hamilton's First Bank of the United States was a privately owned commercial bank — not a government regulator. No one at that institution was an executive officer subject to presidential removal. The court is applying Second Amendment "history and tradition" doctrine to a fundamentally different institutional context, creating a legally incoherent foundation for Fed independence.
• •Unstable Five-Four Math: The Cook decision protecting Fed Governor Lisa Cook passed five-to-four, but only two justices — Roberts and Kavanaugh — actually accept the logic that the Fed deserves a carve-out while the FTC does not. Three liberal justices voted to keep Cook but reject the entire Seila Law framework. Four conservative justices voted against Cook. This means the Fed's protected status rests on two individuals, making it a fragile and temporary equilibrium.
• •Regulatory Power Is Monetary Power: The Federal Reserve Board of Governors holds no balance sheet and makes no loans — it is purely a regulatory body. All its monetary policy operates through regulations on the Federal Reserve Banks, which are nominally private membership cooperatives. This means the distinction between monetary policy and banking regulation is legally artificial. Capital requirement changes, like current bank equity relaxations under Trump, function as direct monetary stimulus regardless of stated intent.
• •The Fiscal Policy Backdoor Risk: A president controlling the Fed gains access to what Menand calls "the money printing machine," threatening the constitutional separation of sword and purse that Hamilton himself identified as the safeguard against tyranny. The Fed can make nonrecourse loans — loans where collateral substitutes for repayment — which function economically as asset purchases. No existing statute clearly prevents a politically controlled Fed from deploying this power for fiscal purposes outside congressional appropriation authority.
• •Fed Funding Structure Creates Unique Independence: The Federal Reserve Board funds itself entirely through assessments on the Federal Reserve Banks, which create money to credit the Board's account. This structure gives the Board complete autonomy from the congressional appropriations process and White House budget oversight. No OMB review, no annual funding battles. This operational independence from the fiscal process is structurally distinct from every other federal agency and predates the modern administrative state framework.
• •Humphrey's Executor Collapse Leaves Fed Exposed: Before Seila Law, the Fed paradoxically had the weakest removal protections among independent agencies because its enabling statute never explicitly defined "cause" for removal. Post-Seila Law, by eliminating protections everywhere else, the court accidentally made the Fed the most protected agency by default. However, the remaining protection is undefined in statute, rests on contested historical analogy, and faces active opposition from Thomas, who has explicitly stated the Fed carve-out makes no legal sense.