The Court and the Fed

 President Trump is attacking the Supreme Court for denying him the unilateral power to impose tariffs. He attacked the Federal Reserve System and its former chair, Jerome Powell, for refusing to lower interest rates. He threatened to have Powell criminally indicted. He tried to fire one member of the Fed’s Board, Lisa Cook (a Black woman, are you surprised?), but was stopped, at least temporarily, by a 5-4 decision of the Supreme Court on June 29.

The tradition of both institutions is that, although their members are nominated by the President and confirmed by the Senate, once in office they are to perform their duties independent of political pressure. The Supreme Court is supposed to interpret the law and the Constitution, while the Fed is supposed to keep unemployment and inflation low. They can listen to the opinions of elected politicians, but they are not to be bound by those opinions. The President is determined to violate that independence.

The independence of the Court is provided for in the US Constitution: The Court is one of the co-equal branches of government. The Fed does not have the same constitutional status, but its independence is stipulated in the legislation that established it.

This is not the first time that the independence of these institutions has been attacked. In the 1930s, President Franklin D. Roosevelt railed at the Court for ruling that much of his New Deal legislation was unconstitutional. Canada has seen disputes between the government and the central bank. This time, however, the attack seems more dangerous, less mediated by serious thinking, more likely to damage the overall structure of government.

These conflicts bring us face to face, however, with an important question about democracy. The two institutions are in the public sector and they have major impacts on the country. They are not, however, democratically controlled. Their most democratic moment comes when their members are nominated and confirmed, in both cases by elected representatives, but after that they are immune from the electorate. The justices are appointed for life, while the members of the Fed’s Board of Governors have 14-year terms.

Is this compatible with democracy? Surely democracy implies that the most important public decisions are made by the people, or at least by the people’s elected representatives. Yet the unelected Court has made incredibly impactful decisions--among many others, to break up the Standard Oil monopoly, to eliminate school segregation, and (temporarily) to permit abortion—without subjecting those decisions to the will of the people. Almost everyone in the country is affected by changes in unemployment, economic growth, inflation and interest rates, yet we have no influence on the institution most responsible for those changes, the Fed.

Have we given up democratic control of our affairs? I expect that you, like me, are terrified of Trump’s use of personal power. But he was elected by the people, while the members of the Supreme Court and the Fed were not. Is their independence justified? I think so, but I will have to make the argument.

The Court

Perhaps the pithiest definition of democracy is found in Lincoln’s Gettysburg Address: “Government of the people, by the people, for the people.” That leaves room for interpretation, and in fact there are many legitimate forms of democracy in the world. In order to understand the independence of the Supreme Court, it is helpful to contrast two of those forms: the British parliamentary system and the American constitutional system.

Britain has no written constitution. Its form of government evolved slowly and amidst conflict over the centuries. Where it has arrived now is at a parliamentary system in which almost all power rests with the elected House of Commons. The upper house, the House of Lords, has little power and the monarchy no formal power. It is a unitary government; that is, there is no separation of branches. The government is simply part of the House of Commons, chosen by the party with the most members.

Since Britain has no written, formal constitution, government legislation cannot be nullified because it violates the constitution. Consequently, Britain has a fairly pure form of democracy, at least in one sense. The House of Commons is elected by the people, and almost everything it passes receives the assent of the House of Lords and the King, becoming law. The people rule. There is no independent court to constrain the Parliament.

The US system, in contrast, is based on a written Constitution which delineates the structure of the federal government. One of the most important features of that Constitution is a Bill of Rights (its first ten amendments), which protects the rights of the people against the government. The founders worried that the government, even though elected, might become tyrannous, so they made provision for the people to be protected against it. The authority of the US government is limited.

One of the things the founders left out of the original Constitution, however, was a mechanism by which the limits would be enforced. No way was spelled out for the people to assert their rights against a tyrannous government. This lack was rectified in the case of Marbury v. Madison in 1803, when the Supreme Court asserted that it had the right of judicial review. It could rule that an action by the government was unconstitutional, and therefore null. In the US,  government power is limited by the Constitution, and the Supreme Court has the authority to enforce the limits.

But the US Supreme Court is unelected. The British government faces no such limitations. Is the American system less democratic than the British?

I think not. Let’s go back to Lincoln’s statement about democracy: Government of the people, by the people, for the people. This implies that the people get to rule, either directly through plebiscites or indirectly through elected representatives. I think it also implies, however, that the people get to have their rights protected. Ever since Marbury v. Madison, the American system provides for this, while the British system, without judicial review, does not.

Tellingly, Canada moved from an almost purely British system to a more American system. In 1982, under the leadership of Prime Minister Pierre Trudeau, it adopted a written constitution which, like its American counterpart, outlines the structure of government and contains a bill of rights. The Canadian bill of rights is called the Charter of Rights and Freedoms. As in the US, the Canadian Supreme Court is unelected, and as in the US, the Court has asserted its authority to modify and sometimes nullify government actions.

Supreme Court decisions are seldom unanimous, and we disagree passionately about many of them. But I think a constitutional form of government, with a supreme court having the power of judicial review, comes closer to meeting the spirit of democracy than a purely unitary, parliamentary system does. The protection of rights is an important part of democracy.

It is critical, therefore, that the Supreme Court, although unelected, retain its independence and resist the effort of the President to bully it into submission. This is fully consistent with democracy.

The Fed

The situation of the Federal Reserve System is different. The Fed is America’s central bank. Unlike the Supreme Court, it does not have constitutional status, and is not a separate branch of government. It was established only in 1913.

The Fed influences many aspects of economic life. It protects the soundness of the banking and financial system. It controls the money supply and interest rates, which in turn have a major impact on the exchange rate, inflation and unemployment.

It is hard to see why these decisions should be sheltered from democratic control. They are very important decisions, and most important decisions in the public sphere are made by democratically elected governments. The government sets tax rates, tariff rates and public expenditure levels. It enacts the criminal code and environmental regulations, it declares war, and in countless other ways designs the structures within which we live. Why should the important subject of money supply and interest rates be an exception to democratic control?

I can’t think of a good theoretical reason, nothing akin to the reasons I gave earlier for protecting the independence of the Supreme Court. My reason for joining those who want an independent Fed is simply practical. We have good reason for thinking that the government would screw it up if it had the chance.

The mysteries of monetary policy are endless; they are the subject of an entire branch of economics. Basically, however, it is pretty simple. Central banks have the dual goals of keeping unemployment and inflation low. If unemployment gets too high, they respond by lowering interest rates, while if inflation gets too high, they raise rates. Decades of economic research have demonstrated that those are powerful if imprecise tools.

The choice between raising interest rates, lowering them or holding them constant is often fraught. On the whole, though, and over a long period of time, the managers of the world’s central banks have demonstrated pretty good skill at balancing the trade-offs. Not so presidents, prime ministers and elected governments. Almost without exception they have favored lower rates, thinking people want lower rates on their borrowing, and that lower rates will create more jobs. They have seldom shown the same concern about inflation—or if they have, they have not put two and two together and realized that lower rates will make inflation worse. Today, for example, Trump wants to take credit for lowering inflation, but attacks the Fed for keeping rates too high. If he controlled the Fed, inflation would increase.

You might say, and many people do, that you care more about unemployment than inflation, so interest rates should be low. That won’t do as a response. The period of the late 1970s and early 1980s is instructive. We experienced “stagflation;” both unemployment and inflation grew. The Fed chose to control unemployment, not inflation, by keeping real interest rates low, and the result was galloping inflation, eventually reaching 12% a year. Finally, the Fed slammed on the brakes. Interest rates rose to exceptionally high levels, but even that did not tame inflation for several years. Meantime, unemployment rose to new highs, and stayed that way for half a decade. In sum, working people paid the price of letting inflation get unacceptably high

It is critical, therefore, that our monetary policy be controlled by people who are concerned with inflation as well as unemployment. We cannot trust elected politicians to be those people.

So yes, the independence of the Fed from political control violates the norms of democracy. Those norms must be violated if we are to have a stable economy.

Both the Supreme Court and the Fed should be kept free from political control, although for different reasons.

John Isbister

August 1, 2026