The Supreme Court of the United States today ruled that President Donald Trump cannot fire a Federal Reserve governor without cause, a decision that sends a clear signal about the independence of central banking. The ruling, which saw Chief Justice John Roberts join the court’s four liberal justices in a 5-4 majority, upheld a lower court’s injunction blocking the removal of Fed Governor Sarah Bloom Raskin. The case, Trump v. Raskin, centred on whether the President has unfettered authority to dismiss members of the Fed’s Board of Governors, a power he claimed under the Constitution’s Article II. The court, however, held that such removals require a showing of inefficiency, neglect of duty, or malfeasance in office.
From my perch overlooking the Square Mile, the contrast with British practice is stark. Here at the Bank of England, the notion of a Chancellor or Prime Minister sacking a Monetary Policy Committee member without reason is unthinkable. The Bank’s independence, granted in 1997, has weathered political storms, including Brexit and the pandemic, precisely because it rests on a bedrock of statutory protection. In the US, the Fed’s political vulnerability has now been exposed, even if the Supreme Court has plugged the dyke for now. Markets reacted with a sigh of relief: the dollar weakened slightly, and US Treasury yields dipped, as investors priced in reduced risk of a fiscal takeover of monetary policy. But make no mistake, the scar tissue remains.
The ruling comes amid a period of acute political instability in the United States. The President’s repeated attacks on the Fed’s interest rate hikes have eroded confidence in the central bank’s ability to act independently. This is dangerous territory. As I have argued before, capital is a cowardly creature. It flows to jurisdictions where property rights are secure and where central banks are not puppets of the executive. The United Kingdom, with its established governance traditions, stands to benefit. British gilt yields have already fallen relative to US Treasuries in the wake of the decision, signalling a modest but noticeable shift in investor preference.
But let us not be complacent. The US Supreme Court’s ruling is not a panacea. It leaves open the possibility that a future president could find cause to fire a Fed governor, perhaps by questioning their competence or loyalty. The shadow of the ‘political Fed’ will persist. For UK investors, the lesson is clear: value the stability of our institutions. The Bank of England’s independence is enshrined in law, and any attempt to undermine it would require primary legislation. That is a high bar, higher than the US Constitution’s ambiguous limits on executive power.
Inflation, of course, remains the elephant in the room. The Fed’s credibility hinges on its ability to bring price pressures under control. With a potential legal battle looming over the appointment of future governors, the path to lower inflation may be bumpier. The British economy, meanwhile, faces its own challenges: sticky wage growth, a tight labour market, and fiscal drag from the Autumn Budget. Yet the Bank of England’s credibility remains intact, a critical advantage in the global competition for capital.
To my fellow financiers, I say: do not mistake the Supreme Court’s decision for a return to normal. The US is a cauldron of political risk. The President’s hostility to the Fed will not evaporate. As for Britain, let us not squander our comparative advantage. The next government, whatever its stripe, must resist the temptation to politicise the Bank. Fiscal responsibility and central bank independence are the cornerstones of market confidence. The bottom line: stability pays. Turmoil, whether in Washington or elsewhere, costs dear.
