Since that’s an issue in the news, I want to make a couple of general observations. They point in the same direction, which is that the idea that our central bank is independent evolved quite slowly and unevenly.
Under the original Federal Reserve act, the Treasury Secretary was an ex officio member of the Board. Some Treasury Secretaries were passive in the role, but Andrew Mellon was not. This should come as no surprise, as he was a banker and an extraordinarily powerful Treasury Secretary. Thus, in his era you could say that there was political supervision (though maybe not control) of the Board.
In 1935, Congress reformed the Federal Reserve to remove the Treasury Secretary from the Board. The Fed also go its own building in 1937 (ironically, around the same time that the Court got its own building.) This was designed to make the Fed independent.
During World War II, though, the Treasury asked the Fed to work hand-in-glove with the Administration to finance the war. The result was the Fed gave up its independence and coordinated with the Treasury. When the war ended, the Fed wanted to end that coordination, but the Treasury did not. It wasn’t until 1951 that an agreement by the Truman Administration was reached to end the Treasury’s active role in Fed policy.
Still, in later decades Presidents or Treasury Secretaries sometimes lobbied the Fed for interest rate cuts. LBJ did this (again, no surprise). So did the Nixon and Reagan Administrations. Maybe this sort of direct jawboning is fine, but this makes Fed independence not equivalent to judicial independence as a norm.
What this all means for an attempt to fire a Fed Governor “for cause” is a question for another day.
Posted by Gerard Magliocca on August 28, 2025 at 07:53 AM