Judging the Fed.

• Date: 01 November 2021
• Author: Ostrowski, Steffi

NOTE CONTENTS INTRODUCTION 728 I. BARRIERS TO JUDICIAL REVIEW OF THE FEDERAL RESERVE 733 A. Doctrinal Barriers to Judicial Review 734 1. Interest-Rate Regulation 734 2. Lending Actions 736 3. Structure of the FOMC 737 B. De Facto Barriers to Judicial Review 740 1. Lack of Final Agency Action 740 2. Lack of Plaintiffs 742 II. JUDICIAL DEFERENCE TO THE FEDERAL RESERVE 745 A. Judicial Review of Regulatory Decisions 745 B. Judicial Review of Monetary-Policy Decisions 752 C. Judicial Review of Lending Decisions 754 III. TOWARD A UNIFIED THEORY OF JUDICIAL REVIEW OF THE FEDERAL RESERVE 758 A. The Blurring of Macroeconomic Policy Making 761 B. Guiding Principles 765 1. Minimize Policy Distortions 766 2. Act as a Catalyst for Congressional Action 769 3. Consider the Timing of Legal Decisions 773 4. Permit Experimentation Within the Fed's Locus of Expertise 778 CONCLUSION 780 INTRODUCTION

Historically, administrative law has centered on the relationship between administrative agencies and courts. (1) More recently, scholarship has expanded beyond this narrow conception of how agencies work, emphasizing the ways in which the "law" of administrative agencies is constituted outside of courts--frequently, within the agencies themselves. (2) This turn has been no less present in scholarship surrounding the Federal Reserve (Fed). Recognizing that the Fed is rarely subject to judicial review, scholars have looked to other mechanisms--including congressional oversight, (3) legislation, (4) internal procedures, (5) reputational concerns, (6) and agency culture (7)--to describe the constraints on and determinants of Fed action. But in their haste to develop an administrative law of the Fed that looks beyond judicial review, scholars have tended to simply ignore it. The result is an incomplete administrative law of the Federal Reserve.

judicial review of the Fed is indeed uncommon. But this does not mean that courts play no role in constraining the Fed. The law, and, more precisely, the way that the Fed expects courts to apply it, creates the boundaries within which Fed officials may operate. (8) Just as the specter of congressional intervention affects the Fed's understanding of what actions are within its legal authority and which are ultra vires, (9) the expected justiciability (or not) of a given action and the expected deference a court will afford the Agency do as well. Understanding courts' treatment of the Fed, then, is necessary to understand the constraints on Fed decision-making.

A study of judicial review of the Fed may be all the more vital in our current jurisprudential and macroeconomic landscape. Over the past decade, we have seen a remarkable rise in antiadministrativism on the Supreme Court. (10) Even where such views have not yet commanded a majority on the Court, "a revolution in separation of powers and administrative law" that could hamstring the administrative state feels imminent." At the same time, the last two decades have brought some of the most dramatic actions by the Fed in its hundred-year history, with contemporary macroeconomic theory embracing a more activist role for the Fed. Many commentators have characterized these actions as occurring at, near, or even past the boundaries of the Fed's statutory authority. (12) The Fed and the Court appear to be on a collision path: an unstoppable force barreling toward an immovable object.

If (or when) this collision occurs, what result? The scholarship on judicial review of the Fed is notably thin. Most scholars who have discussed the subject within the last thirty years touch on it only briefly, noting that Fed actions "rarely . . . undergo judicial review." (13) But even those treating it in greater depth have failed to cover it comprehensively. One line of scholarship addresses judicial review of financial regulators in general, discussing the Fed alongside other regulatory agencies. (14) Other scholarship focuses specifically on the Fed, recognizing that it differs from other regulators in the scope of its mandate and the deference it receives from courts. (15) But these articles tend to focus narrowly on the Fed acting in one specific capacity, be it the Fed as regulator, (16) enforcer, (17) or lender. (18) Finally, a separate line of scholarship discusses judicial review of constitutional challenges to the Fed's agency structure. (19)

Each of these approaches has its benefits. Looking across financial regulators as a class lets scholars identify broad trends in judicial treatment. And focusing on specific subsets of Fed activity facilitates deeper engagement with each. But these approaches have their blind spots as well. Judicial review of a given agency action does not occur in a vacuum; an agency's reputation before a court "can expand or deflate the [agency's] legal authority," whether the court consciously recognizes it or not. (20) One need not look far to find the Fed's reputation doing such work before courts. In judicial opinions, courts have singled out the Fed as uniquely independent and unreviewable because of its particular expertise. (21) Advocates tend to cast the Fed as the paradigmatic technocratic agency that requires independence from the Executive. (22) And judges themselves frequently gesture to the Fed as an exceptional agency. (21) Judicial interference with the Fed, judges seem to feel, would be beyond the pale.

But Fed policy making encompasses a range of initiatives, where the strength of its reputation before courts varies. Judicial pronouncements of Fed exceptionalism occur in certain contexts but not others. For example, when the Fed raises or lowers interest rates, the Second Circuit has declared that it would be "grotesque" for courts to get involved. (24) But when it regulates the financial system, it is treated like any other agency. (25) The fragmented treatment of judicial review of the Fed in scholarship misses this nuance, which is essential for understanding the relationship between the Federal Reserve System and the courts. (26)

This Note aims to fill that gap, offering a comprehensive description and analysis of judicial review of the Fed. It proceeds in three parts. Part I describes when judicial review of Fed activity is available--or, more commonly, when it is not. Some barriers to review emerge from judge-made law, whereas others are de facto obstacles to bringing litigation against the Fed. Part II describes courts' treatment of the Fed when judicial review is available, tracing the various deference regimes courts have applied to the Fed. Courts tend to take a narrow view of the Fed in any given dispute, analyzing the mechanism or statute the Fed is implementing in isolation, rather than considering the Fed in a cross-functional way. As a result, courts have developed a series of deference doctrines that they apply to the Fed depending on its role in a given dispute. Part III turns from the descriptive to the normative. It argues that this category-based approach to judicial review does not fit well with the contemporary macroeconomic landscape, in which Fed actions frequently cross category boundaries. Past Fed policies may have fallen somewhat neatly into categories of actions designed to achieve monetary-policy aims and actions that, say, serve a "lender of last resort" function. But recent macroeconomic developments have caused these (and other) functions to blur. For example, at the zero lower bound, the Fed has used its lending powers to achieve its monetary-policy goals. Courts have so far largely declined to review these types of actions, avoiding this doctrinal dilemma. But if--or when--they do, precedent will not provide a helpful guide. Rather than continue their categorical approach, courts should unify their framework for judicial review and consider Fed actions in the context of the Fed's unique institutional role in the federal bureaucracy.

Make no mistake: I do not mean to suggest that courts are the most important factor when it comes to Fed decision-making--far from it. In administrative law generally, and administrative law of the Fed in particular, the shift in focus from judicial review toward internal agency decision-making is positive. But any complete understanding of the Fed must include analysis of its complex relationship with courts. It is to this analysis that I now turn.

1. BARRIERS TO JUDICIAL REVIEW OF THE FEDERAL RESERVE

   There is no question that judicial review of the Federal Reserve is rare. (27) But just what is it that precludes review? In some cases, judicial review is doctrinally barred. In others, review is available in theory but infrequent in practice. This Part considers each barrier in turn.

   1. Doctrinal Barriers to Judicial Review

      Courts have insulated the Fed from judicial review in three main areas. First, judicial review is wholly unavailable when it comes to the Fed's interest-ratesetting activities. Second, the Fed's lending actions are largely unreviewable under contemporary standing doctrine. Finally, courts have so far declined to permit challenges to the constitutionality of the Fed's structure to reach the merits.

      1. Interest-Rate Regulation

         The Supreme Court has never considered a challenge to the Fed's decision to raise or lower interest rates. In fact, there have been remarkably few challenges to the Fed's interest-rate regulation over the course of its lifespan. But what precedent does exist holds that such challenges are unreviewable. (28)

         In Raichle v. Federal Reserve Bank of New York, the Second Circuit denied judicial review in a challenge to various actions taken by the New York Federal Reserve Bank. (29) The Bank had acted to raise interest rates through a blend of open-market operations (30) and discount-window actions. (31) The plaintiff alleged that the increased interest rates had harmed him, as he was "obliged to pay such rates for borrowed money." (32) He also alleged that economic conditions had not warranted an...