Under the Supreme Court’s contemporary approach to constitutional meaning, there is a surprising degree of doubt about whether key aspects of the Federal Reserve (“Fed”)—its independence from Congress and the President, and even its power to create money—are constitutional. In particular, we propose that the structure and monetary authority of the Fed can be justified by Article I, Section 8 borrowing power, and by the Public Debt Clause of the Fourteenth Amendment. In 1935, eight members of the Court agreed that these provisions require credible commitments: to meaningfully exercise the borrowing power, Congress must be able to promise creditors it will not undermine the value of its debts. We argue that judicial enforcement of sovereign promises is unlikely to fulfill this goal. Instead, the exercise of monetary authority by independent central banks is the most promising current solution to the credible sovereign borrower problem.
January
2025