Tag: federal reserve
The Supreme Court Rebuked Trump On Birthright Citizenship, But That’s Not The Real Story

The Supreme Court Rebuked Trump On Birthright Citizenship, But That’s Not The Real Story

By Monday evening, the storyline had already solidified: a mixed bag for Trump at the Supreme Court. A split verdict on executive power. The Wall Street Journal had the Court “expanding presidential authority” in one breath and “rejecting” Trump’s bid to fire a Fed governor in the next. Trump himself, never one to undersell, called it a “tremendous loss” on the mail-in ballot case and a “BIG WIN” on the firings, and even that whiplash got reported straight, as if he were just providing the scoop—a president taking his lumps along with his victories, proof the system is working as designed.

Don’t believe it. The last two days of decisions only advance the actual storyline: a radically conservative court consolidating its constitutional overhaul and leaving open the prospect of further radical changes to come.

Set against the real stakes of the cases the Court decided this week, this was a week to leave conservatives celebrating, topping off a term that was a conservative juggernaut. And the single most important thing that happened, by a wide margin, isn’t the birthright citizenship case that dominated the headlines. It’s the essential consummation of a project this Court has been working on for sixteen years: the dismantling of the structural architecture that has insulated huge swaths of the federal government from raw presidential control.

Start with Trump v. Slaughter. Read the first paragraph of most of the coverage, and you’d think it was a wash—the Court let Trump fire an FTC commissioner, but it stopped him from firing a Fed governor in the companion case. Tossup, right? Wrong. Slaughter isn’t one beat in an even trade. It’s the demolition, and Cook is the small, fragile thing sitting, illogically, in the rubble.

For ninety years, Humphrey’s Executor v. United States—a unanimous, 9-0 decision, the kind of case first-year law students learn as black-letter, foundational, not-up-for-debate—held that Congress could protect FTC commissioners from being fired without cause. That single case has been the load-bearing wall underneath the entire modern administrative state: the NLRB, the SEC, the Federal Reserve itself before this term, dozens of agencies built by Congress specifically to operate at one remove from whoever happens to be sitting in the Oval Office.

Slaughter lays waste to this entire project on a straight 6-3 ideological vote.

Steve Vladeck called Slaughter “the most important separation-of-powers ruling of the twenty-first century,” and I don’t think that’s hyperbole. It embraces the closest thing to an absolutist version of the unitary executive theory that has been a hobbyhorse on the right for two generations.

Let’s now turn to Trump v. Cook, in which the Court declined to lump the Federal Reserve in with all the other agencies whose wings the Court and Trump now have clipped. It’s the other side of the supposed “split verdict” the Court delivered to the President. In fact, that emerging view both overstates the importance and understates the incoherency of the case.

Five justices—with Roberts and Kavanaugh reversing their positions from the Slaughter case—held that the Fed’s unique historical lineage, tracing back to the First and Second Banks of the United States, exempts it from the unitary executive logic that governs everything else.

The Court didn’t carve out a coherent doctrinal exception for the Federal Reserve, and it’s hard to see what principle of executive power would exempt the Fed. The muddle presented Sotomayor with a field day in her dissent, which she read from the bench. Why do the distinctive characteristics of the Fed amount to a constitutional argument, overcoming the force of Article II, that Congress can insist on the president’s having a good reason for firing Fed governors? The majority’s attempted proffer of historical analogues or influence of monetary policy feels like the sort of makeweight distinction for exempting the Fed, when the real reason is that giving the president the same controlling power could wreak havoc on the national and international economies. Whatever else that is, it is not a constitutional argument.

Properly understood, the Cook decision only underscores the weakness of the Court’s entire line of cases aggrandizing the president and eliminating Congress’s ability to provide for agency independence.

The “balance” narrative the press is running with gets this exactly backwards. The Fed carve-out doesn’t prove the Court is being moderate or restrained. If anything, it underscores just how contingent and unpersuasive the other cases are. In Cook, the majority essentially invents a bespoke, ad hoc exception out of whole cloth for reasons that make eminent sense but don’t stand up alongside the Court’s overall project of taking a wrecking ball to the administrative state.

The stakes of the Court’s arch-reactionary project—wiping the books clean of nearly 100 years of canonical constitutional law—are easy to underappreciate. The dozens of agencies that the Court now has gutted have played a huge role in American life since the New Deal, comprising more or less every area of health, safety, and well-being. The modicum of independence that Congress has provided has meant that they go about their work with an emphasis on expertise and political nonpartisanship.

The independence Congress built into the FTC, the NLRB, the Nuclear Regulatory Commission, the Consumer Product Safety Commission, and dozens of other agencies was salutary and beneficial. Each time, Congress concluded that some questions are better answered by people with expertise and some distance from whoever just won an election than by political appointees taking orders from the West Wing. These agencies bring exactly that—expertise, continuity, nonpartisanship—to decisions that are, quite literally, life-and-death: whether a drug is safe, whether a nuclear plant is sound, whether the money supply is being managed honestly.

Conservatives have long insisted that independent agencies constitute a “headless” fourth branch of government that cuts against the grain of the tripartite constitutional scheme. Nobody has pressed that argument longer, or more patiently, than John Roberts himself. As a young Reagan White House lawyer in 1983, he wrote that “the time is ripe to reconsider the constitutional anomaly of independent agencies.”Two decades later, newly installed as chief justice, he began laying the groundwork to get there, writing in a 2010 case that without unrestricted removal power, “the President could not be held fully accountable for discharging his own responsibilities; the buck would stop somewhere else.” Seila Law followed a decade after that. On Monday, from the center seat, he finished the job he started forty years earlier, declaring flatly: “If anything more is left of Humphrey’s, we overrule it.”

It’s the same kind of strategic patience that produced his slow-motion dismantling of the Voting Rights Act—wait for a reliable majority, chip away case by case, and fully swing the hammer once the votes are no longer in doubt.

Justice Elena Kagan, almost certainly the Court’s preeminent expert in administrative law, has most carried the project of explaining the fundamental flaws and real-world damage of the Court’s evisceration of agency independence. She wrote the principal dissent in Selia Law in 2020, when the Court carved the CFPB’s single director out of Humphrey’s protection. Kagan argued, presciently, that the majority’s supposed “exceptions” to presidential removal power were, in her words, “made up for the occasion,” gerrymandered to reach the result the Court wanted. She joined Breyer’s dissent in Collins the next year, when the Court extended that same logic to the Federal Housing Finance Agency. And now she’s joined Sotomayor’s dissent in Slaughter, as the Court finally erased the unanimous decision in Humphrey’s Executor.

Six years ago, Seila Law arrived as a sort of exception eating the rule, one bite at a time. Now there’s no rule left to eat, just a poorly reasoned carveout of the Fed.

It’s important as well to assess the breadth of the damage to the administrative state that the Court now has green-lighted. It’s not just a matter of the firings that will actually happen, though there will be plenty of those: nothing excites Trump more than the power of saying “you’re fired.”

But the impact will be broader and more corrosive. An expert at the Nuclear Regulatory Commission deciding whether a reactor is safe, an economist weighing a rate decision, a scientist evaluating a vaccine—all of them now know that the “wrong” finding, the politically inconvenient one, can get them sacked at will, no cause required. You don’t have to fire very many people to make everyone else flinch. That’s the thumb on the scale: toward partisan convenience and away from independent expertise, exactly the trade the people who built these agencies thought they had foreclosed for good.

I want to close with a word on the term-ending decision in the birthright citizenship case, Trump v. Barbara, because it is of a piece with the more accurate narrative of the executive power cases. The case is likely going to get covered today as the big Trump rebuke of the term, and on one level, that’s fair. Roberts wrote for five justices holding that children born here to parents who are undocumented or here temporarily are citizens, full stop, exactly what the text of the Fourteenth Amendment says.But it’s stunning and stomach-turning that four justices were ready to say otherwise.

Thomas, in a cribbed, nasty opinion, argued the Fourteenth Amendment was really only ever about overruling Dred Scott and doesn’t mean what it plainly says. And Kavanaugh, presenting himself as the careful institutionalist, concurred in the judgment but argued the real problem is only statutory—that Congress could amend the citizenship statute tomorrow to carve out children of undocumented parents, fully consistent with the Constitution as he reads it. But there is no such position consistent with the Constitution: the question is always, and only, whether people are born here and are subject to the jurisdiction of the United States. If so, they are citizens by the plain command of the constitutional text

Trump noticed within hours, taking to Truth Social, announcing that “no long and unwieldy Constitutional Amendment is necessary,” that Congress should “start TODAY” on legislation ending birthright citizenship, with his “Complete and Total Support.” That’s not freelancing. That’s Trump reading Kavanaugh’s opinion correctly and picking up exactly the tool the Court left sitting on the table for him.

So yes, we dodged a bullet. But it landed in the vicinity, close enough to feel the whistle of it. A case this easy, this dictated by text, this nearly self-evident—and four members of the Supreme Court were willing to read it the other way. That’s in many ways the bigger story.

It’s in fact the same story, told twice in two days: a court inclined to bend toward the administration’s preferred outcome whenever doctrine gives it the slightest room to do so, and restrained by margins more thin, fragile, and narrow than the headlines suggest.

Harry Litman is a former United States Attorney and the executive producer and host of the Talking Feds podcast. He has taught law at UCLA, Berkeley, and Georgetown and served as a deputy assistant attorney general in the Clinton Administration. Please consider subscribing to Talking Feds on Substack.

Reprinted with permission from Talking Feds.

How Warsh May Infect The Federal Reserve With Trump's Rampant Corruption

How Warsh May Infect The Federal Reserve With Trump's Rampant Corruption

This week was the first meeting under new Federal Reserve Chair Kevin Warsh of the Federal Reserve Boards Open Market Committee (FOMC). Warsh has promised to restructure the Fed, but it is still not clear he means by this.

Donald Trump very explicitly picked Warsh because he expected that he would lower interest rates. That goes against Warsh’s past history of being an inflation hawk. In his earlier tenure as a Fed governor during the Great Recession, Warsh was arguing against expansionary monetary policy even when the unemployment rate was close to ten percent. And he was concerned about hyperinflation when the actual inflation rate was near zero.

We still don’t know how Warsh plans to resolve these seemingly contradictory impulses. He has said that he wants to reduce the Fed’s balance sheet. This would mean selling off trillions of dollars of bonds that the Fed bought both during the financial crisis and more recently during the pandemic.

Selling off bonds would have the effect of raising the long-term interest rates that matter most for the economy, like car loans and mortgages. But it’s possible that Trump wouldn’t be bothered, since he probably doesn’t understand the connection between reducing the balance sheet and raising rates.

The other area where Warsh has indicated he wants to make a sharp departure from past practice is the amount of information that the Fed discloses to the public about its discussions. This reverses the trend toward greater transparency under the last three Fed chairs.

Under Alan Greenspan, the Fed was deliberately opaque. I remember walking to work one day in the mid-1990s, the day after Greenspan had given some big speech. Back then, we had newspaper boxes where you could buy a newspaper. I always glanced at the machines as I walked by. Half of the papers had headlines saying something to the effect of “Greenspan plans to raise rates.” The headlines for the other half were something to the effect “Greenspan to leave rates unchanged.”

Greenspan, who followed his press closely, was reportedly delighted. He had given a major speech, and no one had any idea what he was talking about.

Ben Bernanke, his immediate successor, wanted the Fed to be more transparent. He explicitly introduced the concept of “forward guidance” to Fed policy: the idea that the Fed would tell people where it expected interest rates to go in the near-term future. In their tenures as Fed chair, both Janet Yellen and Jerome Powell continued this policy. Their view was that they did not want the public to be surprised by the Fed’s decisions.

As an economic matter, this makes good sense. It is desirable to reduce uncertainty so that businesses and individuals can better make plans for the future. If a business is considering borrowing to expand, it may want to put its plans on hold if the Fed says it is likely to raise rates substantially in the near future. By sharing as much information as practical, businesses and individuals can be better informed about the likely future state of the economy and take this information into account in making their decisions.

Transparency is also important for combatting corruption. If anyone has inside knowledge of the Fed’s interest rate plans, they can make a huge amount of money, at the expense of others in the market, through their inside trades.

Wayne Angell, who served as a Fed governor from 1986 to 1994, began consulting at the rate of $100 a minute (roughly $220 in today’s dollars) after he stepped down from his position in 1994. Angell may have been an insightful observer of the national economy, but he was obviously being paid for his knowledge of his former colleagues’ views on interest rates.

If the Fed is fully transparent about its intentions, no one is going to get paid $220 a minute for their insights on what the FOMC is thinking. We don’t know how far Warsh will look to go with this move away from Fed transparency, but the further he goes, the more room there is for corruption.

And that is what makes Warsh a true Trump appointee. No administration in U.S. history has ever been as blatantly corrupt as Trump in his second term. Warsh seems intent on bringing that corruption to the Fed.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.

Trump's Tariffs Are Still Inflating Prices -- And Will Stop Fed From Cutting Rates

Trump's Tariffs Are Still Inflating Prices -- And Will Stop Fed From Cutting Rates

Donald Trump assured us that exporters would pay his tariffs; that it would effectively be free money to the United States. At times he even suggested a tariff dividend, where he would send us all checks of $1k to $2k with all the money that was pouring in from his tariffs.

Virtually all economists said this was nonsense. Based on extensive research, they argued that people in this country would pay the overwhelming majority of the tariffs, even if there is some question as to how much might be borne by importers and retailers, as opposed to consumers.

We quickly learned that the Trump story was wrong. Before Trump’s election, inflation had been headed down to the Fed’s 2.0 percent target. After Trump’s “Liberation Day” tariffs went into effect, inflation began rising, hitting 3.0 percent even before the Iran War. With the big war-related run-up in energy prices, inflation is now over four percent.

With everything else going on in the economy and the world, we shouldn’t lose sight of the impact of the Trump tariffs. We got new data on that yesterday, when the Bureau of Labor Statistics released May data on import prices. The data showed non-fuel import prices rose 0.8 percent in the month of May and were up 3.7 percent over the last year.

Just to be clear, these are the prices that are paid to exporters. They do not include the tariffs that are paid by importers. The tariffs are added on to these prices. If exporters were eating the tariffs, as Trump promised, import prices would fall.

To take a simple case, if Trump imposed a ten percent tariff on shoes, in the exporters eating the tariff story, the price of imported shoes would fall ten percent. That would leave businesses and consumers here unharmed and exporters getting ten percent less for the price of their shoes.

This is clearly not happening. Trump’s tariffs may not be responsible for import prices rising (although his war might be), but they clearly are not falling. As every academic study has shown, and U.S. consumers know, we are paying Trump’s tariffs.

The sharp rise in import prices will be another factor pushing inflation higher. The increase in import prices may not be fully passed on to consumers, but certainly much of it will.

To take the simple arithmetic here, imports of goods are roughly percent of GDP. If import prices rise 3.7 percent, that would add a bit less than 0.4 percentage points to inflation, and that is before the impact of any Trump tariffs. The full story will be more complicated, but this should give us some idea of what we’re looking at.

These new data come out just as the Federal Reserve Board is having its first meeting under its new Trump-appointed chair, Kevin Warsh. Trump demanded that Jerome Powell, the prior chair, lower interest rates. When he refused, Trump threatened to fire him and then prosecute him.

Trump clearly wants lower interest rates and has said that he expects Warsh to give him what he wants. With the recent data all showing inflation on an upward path (we got bad news on both the Consumer Price Index and the Producer Price Index last week), it would be very hard to envision any of the other 11 members of the Fed’s Open Market Committee (FOMC) that determines interest rates voting for a rate cut.

This leaves Warsh with the option of either being the first Fed chair ever to be in the minority on an FOMC vote or incurring Trump’s wrath on Truth Social. Being an opportunistic sycophant can sometimes get people in trouble.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.

Fun Times Ahead! What Kevin Warsh Can Expect At His First Fed Meeting

Fun Times Ahead! What Kevin Warsh Can Expect At His First Fed Meeting

Newly appointed Federal Reserve chair Kevin Warsh will lead his first Fed meeting in less than a month. Ordinarily, I would feel sorry for a person in his situation. But since the guy is a rich, power-hungry jerk, I am looking forward to some great entertainment.

To set the table here, in his vast ignorance, Donald Trump has decided that interest rates should be much lower than they are now. He has muttered something along the lines of the Fed having a 1.0 percent interest rate instead of the current 3.5 percent rate.

Trump repeatedly threatened the outgoing Fed chair, Jerome Powell, who he had initially appointed. Trump started with insults on his Truth Social platform, moved on to threats of firing, and then told his Justice Department to cook up a criminal investigation.

While they at least temporarily suspended any prosecution, to get the votes needed in the Senate for Warsh, Trump has explicitly left the option on the table. And Acting Attorney General Todd Blanche has made it clear that he will indict people for getting Trump angry. Powell may still end up facing criminal charges for not going along with Trump’s demands to lower rates.

Trump also has said that he expects Warsh to lower rates or he wouldn’t have appointed him. For this reason, we might expect that Warsh will be looking to lower rates next month.

The problem for Warsh is that he can’t lower rates by himself. He would have to convince a majority of the 12-person Federal Open Market Committee (FOMC) to go along with lower rates. He is not likely to get much help here.

At the last meeting, there was only one person arguing for lower rates, Stephan Miran, another Trump appointee. Warsh replaced Miran in his seat on the FOMC when he became Fed chair. This means that Warsh will step into the meeting with 11 other FOMC members who wanted to keep rates unchanged at the last meeting. Several of them actually leaned toward raising rates.

The new data since that meeting all point to higher inflation and also a somewhat improved labor market. That is not a mix that makes a good case for lowering interest rates.

The overall Consumer Price Index increased 0.6 percent in April, after rising 0.9 percent in March. This brought the year-over-year rate to 3.8 percent, the highest since early 2023. The core wasn’t too much better, rising 0.4 percent in April, bringing the year-over-year rate to 2.7 percent.

The Producer Price Indexes (PPI) and the Import Price Indexes were arguably even worse. The final demand index in the PPI rose 1.4 percent in April, bringing the year-over-year increase to 6.0 percent. The core index rose 0.6 percent, bringing its year-over-year increase to 4.4 percent..

The non-fuel import price index rose 0.8 percent in April, bringing the increase over the last year to 2.9 percent. These prices, on items like imported clothes and cars, had been falling in 2024. (The import price index does not include tariffs.)

These data all indicate a rate of inflation that is well above the Fed’s 2.0 percent target, and considerable pressure from input prices pushing inflation still higher in the future. It is hard to see how Warsh would be able to convince the other 11 FOMC members that the new data since the last meeting justify a rate cut.

This puts Warsh in the interesting spot where he either votes to keep rates constant (there will likely be members pushing for a rate hike) and incurs Trump’s wrath, or he casts a pointless vote for a cut. If Warsh does the latter, it will be the first time ever that a Fed chair has been in the minority on a vote on monetary policy.

If Warsh ends up being the only vote for a cut, like his predecessor, Stephan Miran, it would be truly unprecedented for a Fed chair to be completely out of line with the rest of the FOMC. Most often, the FOMC has no dissents, as the committee works to reach a consensus. The Fed chair being the lone dissenter would be extraordinary.

This dissent may make Trump happy, but it likely takes Warsh further from the goal of lower rates. Unless Trump tries to jail the rest of the FOMC, it will be necessary to convince the other members that there is a good argument for lower rates. A vote for a cut with the data we have recently seen does not look serious. It is not going to carry weight with the people Warsh needs to convince.

As I said, if he weren’t a pathetic, power-hungry jerk, I would feel sorry for him. However, given the situation, I look forward to the entertainment.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.


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