Legal scholar John Yoo of the University of California, Berkeley warns the U.S. Supreme Court’s decision in the Trump vs. Cook case could have lasting consequences for the independence of the Federal Reserve. The case centers on whether a president can remove a Fed governor “for cause,” a standard that has protected the central bank from political pressure for decades. John Yoo also explains what the ruling could mean for U.S. monetary policy and global financial stability.
00:00In places like Iraq, in places like Nigeria, in places like Greenland, and in places like Venezuela.
00:11You guys.
00:16Governor Cook.
00:30This is one of the most important cases about presidential power and the administrative agencies, perhaps more important than the other decision that the court's going to make this year about the Federal Trade Commission and the independence of those commissioners, because the Federal Reserve is the most important administrative agency in the United States.
00:57And while the President, I think, has a good constitutional argument to have direct control over things like the FTC, the FCC, you know, these are agencies which are enforcing federal law.
01:13Whether he should have direct control over the money supply, that's another question. And that's enormously important because that's such a direct immediate impact on the economy.
01:27We call him too late for a reason. You should have caught him a year ago. He's too late.
01:47And so the Fed is really, the question of the Fed is really going to put the Roberts Court to the test. Does it really believe in this sort of absolute principle? Everyone in the executive branch must be under the control of the president?
02:01The President? Or is it going to accommodate? Is it going to compromise their ideals? Because almost every economist, macroeconomist, and most political scientists believe the Federal Reserve should not be under the control of politicians, elected politicians?
02:20It's undeniable that the decision that they make will not just affect our economy, that it will spill over into the rest of the world due to the central importance of the Fed and just the management of the global financial system.
02:42While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high.
02:51As we parse the incoming information, we're focused on separating the signal from the noise as the outlook evolves.
02:58On Jerome Powell, you said that the termination of Jerome Powell cannot come fast enough. He says he won't leave, even if you ask him to.
03:06Oh, he'll leave. If I ask him to, he'll be out of there. But I don't think he's doing the job. He's too late, always too late, a little slow, and I'm not happy with him.
03:21I let him know it. And if I want him out, he'll be out of there real fast, believe me.
03:28In terms of the protections which Congress gave to the governors of the Fed, the governors of the Fed have this for-cause protection,
03:39which means they can't be relieved of duty unless they've committed a crime, abused their powers, and maybe something equally as bad.
03:49We don't actually have a lot of case law interpreting for cause, which is why the Supreme Court might choose this as a moment to set the bar and then say maybe Cook meets it.
04:00The chairman of the Federal Reserve does not have that protection at all. So it seems to me just under the statute, the president could fire Powell as the chair.
04:13But Powell would then return back to being a regular member of the board, just like Lisa Cook, and he would still have this for-cause protection from being fired from the board overall.
04:26Thanks to everyone for your comments. I, like others, am very much looking forward on these approaches that we're considering and on the other topics raised today, in particular the-
04:36But here, what the court could say, if it wanted to avoid striking that provision down that protects the independence of the Fed, it could say maybe the president in this case of Governor Cook might be able to satisfy that high standard.
04:55Maybe if it's true that she misrepresented her financial condition on mortgage statements, on financial disclosure statements, that meets the for-cause standard.
05:08And then the court could escape having to strike down the protections that govern the Federal Reserve too.
05:14And that's possible. I could see that as a compromise. We'll have to really pay attention to oral argument to see if Chief, I would expect to be Chief Justice Roberts, maybe Justice Kavanaugh, maybe Justice Kagan on the left side that might be interested in this kind of off-ramp from this constitutional confrontation between Trump and the Federal Reserve that might, right, let Trump have a short-term win getting Cook out of office, but preserve the long-term independence of the Fed.
05:42But what it could do is say, here's what for-cause protection from firing means. And they could say it means you have to have committed a crime, you have to have abused your authority, you have to have directly refused to obey superior orders from legitimate authority, something very high, and then say to the judges below, now that you have the standard, apply it to the Cook case.
06:07The threat of criminal charges. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.
06:19I think the court would not want to do, I think, is to make a decision which throws the country into a depression. And I don't know whether, you know, taking away the independence of the Fed would do that, but it would surely produce a
06:49a chaotic effect on the financial markets in the U.S., maybe worldwide. The Supreme Court doesn't want to render a decision that's going to have that profound an effect on the economy.
07:19So, let's say, here's what we're going to do.
07:20So, let's say, here's what we're going to do.
07:21So, let's say, here's what we're going to do.
07:22So, let's say, here's what we're going to do.
07:23So, let's say, here's what we're going to do.
07:24So, let's say, here's what we're going to do.
07:26So, let's say, here's what we're going to do.
07:27So, let's say, here's what we're going to do.
07:28So, let's say, here's what we're going to do.
07:29So, let's say, here's what we're going to do.
07:30So, let's say, here's what we're going to do.
07:31So, let's say, here's what we're going to do.
07:32So, let's say, here's what we're going to do.
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