Fed independence hangs on 5-4 ruling as GAO model gains traction

The Supreme Court's 5-4 split over Federal Reserve independence has left the central bank's status dependent on one vote, pushing former officials to propose restructuring it as a legislative agency modeled on the Government Accountability Office.

"If the Federal Reserve's independence is to be protected, it needs a mechanism more powerful than presidential self-restraint or a tenuous balance of opinion in the Supreme Court," said Alton Frye, presidential senior fellow emeritus at the Council on Foreign Relations.

The twin rulings, Trump v. Slaughter and Trump v. Cook, delivered on the final day of the term, cut opposite ways. In Slaughter, the court overturned the nine-decade-old Humphrey's Executor precedent, letting President Donald Trump fire Federal Trade Commission Commissioner Rebecca Slaughter. In Cook, decided moments later, the court blocked the removal of Fed Gov. Lisa Cook, whom Trump dismissed in 2025 over an alleged mortgage-application discrepancy. The Fed, under Chair Kevin Warsh, held interest rates steady for a second consecutive meeting as the economy grew a tepid 1.5 percent in the second quarter.

The stakes extend beyond personnel. If the Fed's independence erodes, investors may price in higher inflation risk and demand larger term premiums on long-dated Treasuries, pushing up yields and pressuring the dollar and equities. Frye's proposal — modeled on the Budget and Accounting Act of 1921 — would designate the Fed "an instrumentality of the United States Government independent of the executive departments," shielding governors from arbitrary removal.

The GAO blueprint offers a century of precedent. The 1921 act passed with overwhelming support — 335-3 in the House and a voice vote in the Senate — and was signed by President Warren Harding. It created the General Accounting Office, specifying it "shall be independent of the executive departments," and transferred the Treasury comptroller's staff and property to the new agency. A 2004 statute renamed it the Government Accountability Office and reaffirmed its status as "an instrumentality of the United States Government independent of the executive departments," a description President George W. Bush endorsed.

Under that model, the president still nominates the comptroller general, who serves a 15-year term, from a list of three candidates proposed by a bipartisan commission of congressional leaders. Applying the same structure to the Fed would keep the president's power to nominate board governors — including the chairman — for Senate confirmation, while preserving 14-year staggered terms for governors and a four-year term for the chairman. The critical change would be constraining the president's power to remove governors without cause.

Why the Fed's status needs statutory protection

The constitutional case for the Fed's independence rests on Congress's powers "to coin Money" and "to borrow Money on the credit of the United States," enhanced by the necessary-and-proper clause. The Constitution grants the president no comparable authority, Frye noted. Chief Justice John Roberts, writing for the Cook majority, invoked common-law tradition to justify the Fed's unique status — a foundation Frye said the court's unitary-executive leanings could erode.

The market stakes of a politicized Fed

The 5-4 split leaves monetary policy exposed to political risk. If the Fed becomes subject to presidential interference, investors could demand higher term premiums on long-dated Treasuries, pushing yields up and pressuring the dollar. The Fed's self-funding — it draws no tax money or public appropriations — would shield it from congressional budget pressure, while a pluralistic legislature would be less able than a single president to intimidate the board, Frye argued.

Trump's renewed attempts to dismiss Cook show the urgency. There is little likelihood the current president or his congressional allies will advance the reform, Frye conceded, but the enduring bipartisan commitment to an independent Fed could make it possible over the long haul. "It isn't too early to start building the coalition to make it happen," he wrote.

This article is for informational purposes only and does not constitute investment advice.