A Thought On Emergency Powers

The Paper Fortress

There is a building on Constitution Avenue in Washington, between the Lincoln Memorial and the Washington Monument, that most Americans have never thought about and every American depends on. The Eccles Building — named for Marriner Eccles, the Fed chairman who fought FDR over fiscal policy and won — houses the Board of Governors of the Federal Reserve System. Inside, a handful of appointed officials set the price of money for the largest economy on Earth. They are not elected. They cannot be fired for policy disagreements. They answer, in theory, to Congress, but Congress has made a habit of leaving them alone. This arrangement — a powerful institution deliberately insulated from democratic pressure — is one of the stranger features of American governance, and one of the most fragile.

The Federal Reserve’s independence is not in the Constitution. It is not guaranteed by any amendment or protected by any structural feature of the republic. It exists because Congress passed a law in 1913 creating it, and because every subsequent generation of politicians has chosen, with varying degrees of enthusiasm, to respect the boundaries that law established. The independence of the Fed is a norm dressed up as an institution. And norms, as Americans have been reminded in recent years, are only as durable as the willingness of powerful people to honor them.

What most people do not know — what most people in Washington do not know — is that the legal architecture for dismantling that independence already exists. It has existed since 1976, when Congress passed the National Emergencies Act in a fit of post-Watergate reformist energy. The NEA was supposed to constrain presidential power. In practice, it created a menu.

The story of the National Emergencies Act begins, as so many stories about executive overreach do, with the Vietnam War. In 1970, Senator Frank Church of Idaho discovered that when Richard Nixon secretly expanded the war into Cambodia, the Pentagon planned to fund the operation using emergency provisions from a Civil War–era law that had originally authorized the cavalry to buy feed for its horses. Church was appalled — not just by the Cambodia escalation, but by the revelation that four separate national emergencies were still technically in effect, one of them dating to 1933. Hundreds of statutory powers had accumulated over four decades of rolling emergencies, available to any President willing to invoke them. Nobody had bothered to turn them off.

The NEA was Congress’s attempt to clean house. It terminated all existing emergencies, required Presidents to specify which laws they were activating, and created a mechanism for Congress to terminate future declarations by majority vote. It was, by the standards of 1970s reform legislation, a sensible piece of work. It had one fatal flaw and one fatal wound.

The flaw was that it never defined what constitutes a “national emergency.” The drafters worried that any definition would be either too narrow (preventing legitimate emergency action) or too broad (inviting abuse). So they left the term undefined, trusting that Presidents would exercise reasonable judgment. This was optimistic.

The wound came seven years later, in 1983, when the Supreme Court decided INS v. Chadha and struck down the legislative veto — the very mechanism Congress had built into the NEA to terminate emergencies by majority vote. After Chadha, the only way to end a presidential emergency was through a joint resolution, which requires the President’s signature. A President can now declare an emergency that Congress opposes, and Congress cannot stop it without a two-thirds supermajority in both chambers. The reform designed to constrain executive power had become, through judicial intervention, a one-way ratchet.

Today, roughly 150 statutory provisions lie dormant in the U.S. Code, waiting to be activated by a presidential emergency declaration. They cover military deployments, economic sanctions, communications infrastructure, federal contracting, environmental regulations, and public health. Some are mundane. Some are extraordinary. A few are genuinely alarming. Taken together, they represent a parallel government — a shadow constitution that activates when the President signs his name to a piece of paper and publishes it in the Federal Register.

The question this essay is concerned with is not whether these powers could be used. They are used constantly — there are more than thirty active national emergencies at any given time. The question is whether they could be turned against the Federal Reserve, the institution most responsible for the economic stability that Americans take for granted. The answer, examined honestly, is yes.

Begin with the most powerful tool in the kit: the International Emergency Economic Powers Act, passed in 1977 as a companion to the NEA. IEEPA was designed for sanctions. When a President identifies an “unusual and extraordinary threat” to national security, foreign policy, or the economy that originates substantially outside the United States, IEEPA grants sweeping authority to regulate, freeze, or prohibit financial transactions involving foreign exchange, foreign banking institutions, and international commerce. Every sanctions regime since Carter has been built on IEEPA. It is the legal backbone of American economic statecraft.

It is also, potentially, a back door to monetary policy.

Imagine a President who wants lower interest rates. The Fed Chair disagrees. The conventional playbook — public hectoring, Twitter posts, veiled threats about reappointment — has been tried and has largely failed, because markets trust the Fed more than they trust the President, and the Chair knows it. So the President tries something different.

He declares a national emergency over capital outflows. Foreign investors, he says, are pulling money out of American markets, destabilizing the financial system, threatening American workers. The emergency may be real, or it may be exaggerated, or it may be fabricated entirely — it does not matter, because no court has ever defined how extraordinary the threat must be. Under IEEPA, the President imposes capital controls. Certain categories of cross-border dollar transactions now require government approval. Foreign-held Treasury securities cannot be sold without a license.

The Fed Chair still sets the federal funds rate. But the rate now operates inside a cage. Capital controls restrict the flow of money across borders, disrupting the transmission mechanism through which interest rate changes affect the real economy. The dollar’s value is no longer set by markets responding to Fed guidance; it is set by the President’s licensing regime. The Chair announces a rate hike at the next FOMC meeting, and nothing happens, because the channels through which that hike would normally propagate have been administratively sealed.

Would the courts stop this? Historically, courts have been extraordinarily deferential to IEEPA actions. The statute has been used to sanction entire nations, freeze the assets of individuals without trial, and — most recently — impose global tariffs on every trading partner simultaneously. The tariff cases represent the first serious judicial pushback, and their resolution will set the boundary for a generation. If the courts hold that IEEPA’s text is broad enough to encompass tariffs — which are nowhere mentioned in the statute — then the argument that it cannot encompass capital controls becomes very difficult to sustain.

The more immediate constraint is the market. Capital controls would trigger panic. Equity markets would crash. The dollar would spike and then collapse as foreign investors scrambled to exit positions they could no longer freely trade. Bond yields would become untethered from fundamentals. The President would be engineering precisely the kind of financial crisis he claimed to be preventing.

But here is the uncomfortable truth: a President with a strong populist mandate might welcome the chaos, at least initially. Financial crises create political opportunities. They justify further emergency action. They discredit the institutions — like the Fed — that failed to prevent them. A President willing to accept a recession as the price of breaking the Fed’s independence is not an irrational actor. He is an actor with different preferences than the ones economists assume.

The IEEPA play is dramatic. The next strategy is quieter, slower, and in some ways more insidious.

The Federal Reserve Board of Governors employs roughly 2,500 people in Washington. They are economists, lawyers, data scientists, bank examiners — the institutional brain of the central bank. They are also, for purposes of federal employment law, government employees. Their salaries are set through processes that ultimately connect to the federal pay system.

Under 5 U.S.C. § 5303(b), the President may alter the automatic annual adjustment to federal pay schedules if “national emergency or serious economic conditions affecting the general welfare” make the standard adjustment “inappropriate.” This provision has been invoked routinely, almost mechanically, by every President since Clinton. It is bureaucratic wallpaper. Nobody notices it.

But notice what it enables. A President who wanted to degrade the Fed’s institutional capacity could freeze or cut compensation for Board staff. Not the Chair — his salary is set by statute and politically untouchable. The staff. The researchers who build the macroeconomic models. The examiners who monitor systemically important banks. The lawyers who draft regulations. Make their jobs pay less than equivalent private-sector positions — which already pay more — and watch the talent drain accelerate.

This is not a decapitation. It is a slow bleed. You do not fire the surgeon; you take away his nurses, his anesthesiologist, his imaging equipment, and then express surprise when the operation fails. The Chair sits in the Eccles Building and makes pronouncements, but the institutional machinery that turns those pronouncements into effective policy has been quietly hollowed out.

The beauty of this approach, from the President’s perspective, is its deniability. Federal pay freezes are routine. They affect the entire government. No one can prove that the Fed was targeted specifically. The President expresses deep respect for central bank independence while systematically undermining the institution’s ability to exercise it.

The weakness is that the Fed’s most critical operations are not run from Washington. The New York Fed — a private institution, not a government agency — operates the trading desk that executes open market operations. The regional banks employ their own staff under their own compensation structures. A pay freeze at the Board hurts, but it does not cripple. The Fed is more resilient to this kind of attrition than most government agencies, precisely because its hybrid public-private structure was designed, whether intentionally or not, to resist political interference.

Still, a Board staffed by second-tier talent, unable to attract or retain the caliber of economist that the institution requires, is a Board that makes worse decisions. And worse decisions, over time, erode the credibility that is the Fed’s only real source of power. The Chair’s authority derives not from statute but from the market’s belief that the Fed knows what it is doing. Undermine the knowing, and the authority follows.

There is a third approach, more sophisticated than either of the first two, and it does not require the President to touch the Fed at all.

The term of art is “fiscal dominance.” It describes a condition in which government spending is so large, relative to the economy, that monetary policy becomes subordinate to fiscal policy. The central bank still sets interest rates, but the rates are swamped by the sheer volume of government-directed economic activity. The Fed adjusts the thermostat; the President has opened all the windows.

Under normal circumstances, fiscal dominance is a consequence of sovereign debt crises or wartime mobilization — conditions in which the government’s borrowing needs are so enormous that the central bank has no choice but to accommodate them. But the NEA’s emergency provisions make it possible to engineer fiscal dominance deliberately.

The relevant statutes are unglamorous. Under 50 U.S.C. §§ 1431–1435, the President may authorize defense agencies to enter contracts outside normal procurement rules during a declared emergency. This authority has been continuously exercised since 1958. Under 50 U.S.C. § 4533, the President has broad powers to expand domestic industrial capacity for national defense, with certain procedural safeguards waivable during emergencies. Under 40 U.S.C. § 3147, the President can suspend Davis-Bacon prevailing wage requirements on all federal construction contracts.

Now combine them. The President declares a national emergency — over supply chain vulnerabilities, say, or critical mineral dependence on China, or the deterioration of defense infrastructure. All plausible, all arguably legitimate. Under emergency contracting authority, the Pentagon begins placing massive orders with domestic manufacturers, bypassing the normal appropriations process. Under industrial base authorities, the government funds the construction of new factories, new shipyards, new semiconductor fabs. Under the Davis-Bacon suspension, the labor costs on all this construction drop substantially, allowing the spending to go further while simultaneously altering wage dynamics in the construction sector.

The cumulative fiscal impulse is enormous. Hundreds of billions of dollars flow into the economy through channels the Fed does not control and cannot offset with rate adjustments alone. If the President wants inflation, he gets inflation. If the President wants a boom in specific sectors and regions — swing-state manufacturing corridors, for instance — he gets that too. The Fed raises rates, and the economy barely flinches, because the executive branch is pumping stimulus directly into the system faster than the Fed can drain it.

The legal challenges to this strategy are almost nonexistent. Each component has clear statutory authority and decades of precedent. Defense contracting under emergency provisions is routine. Industrial base investment is bipartisan motherhood. Even Davis-Bacon suspension, while politically fraught, has been upheld every time a President has tried it. No court has ever held that the cumulative fiscal effect of individually authorized emergency actions constitutes an unconstitutional encroachment on the Fed’s monetary authority — because no one has ever framed the issue that way.

The constraint, again, is economic. Fiscal dominance produces distortions: misallocated capital, inflationary bottlenecks, crowding out of private investment, asset bubbles in favored sectors. These consequences take time to manifest — months, maybe a year — but when they arrive, they are severe. A President running this play is drawing on a line of credit that the economy will eventually call due.

There is a final tool in the emergency arsenal, and it is the one that reveals most clearly how far the legal architecture extends beyond what any reasonable person would consider appropriate.

Under Section 706 of the Communications Act of 1934, as amended in 1942, the President may, upon proclamation of a national emergency or threat of war, authorize the use or control of any communications facility, and may suspend rules governing telecommunications. The plain text of the statute is broad enough to encompass virtually any communications infrastructure in the country.

Modern central banking is, at its core, a communications exercise. The FOMC does not move money; it moves expectations. Forward guidance — the Fed’s statements about its future intentions — is more powerful than the rate changes themselves. Markets respond to the Chair’s press conference in real time. They parse every word of the FOMC statement. They extract probabilistic forecasts from the dot plot. The Fed’s ability to communicate clearly and credibly with markets is not a supplement to monetary policy; it is the primary mechanism through which monetary policy operates.

A President who could disrupt that communication — even briefly, even partially — could disrupt monetary policy itself. Imagine the FOMC voting to raise rates during a declared emergency, and the Chair’s press conference encountering “technical difficulties” while the President delivers a competing economic address. Imagine an executive order requiring “national security review” of all government communications during the emergency period, creating a seventy-two-hour delay in the release of FOMC minutes. Imagine the President invoking communications authority to commandeer broadcast spectrum during the Chair’s testimony before Congress.

This scenario sounds extreme because it is extreme. It is also, on the face of the statute, legal. And that is precisely the problem with emergency powers: the gap between what is legally permissible and what is politically thinkable is enormous, and it is shrinking.

In practice, this maneuver would fail almost immediately. The First Amendment challenges would be overwhelming. Courts would grant emergency injunctions within hours. Markets would interpret the action as a coup against the central bank and respond accordingly — a Treasury selloff, a dollar crisis, a credit freeze. Congress would have bipartisan grounds for impeachment proceedings. The President who tried this would not succeed in controlling the Fed; he would succeed in triggering a constitutional crisis and a financial meltdown simultaneously.

But the maneuver does not need to succeed to do damage. Its value is as a threat — spoken or unspoken. A President who has demonstrated willingness to invoke emergency powers aggressively in other domains creates an implicit threat environment in which the Fed must calculate not only optimal monetary policy but also the political consequences of defying the White House. The threat does not need to be explicit. It does not even need to be intentional. It exists as a structural feature of a legal system that grants the President more power than any President should have.

The scenario most likely to unfold is not any of these strategies in isolation. It is all of them, attenuated and combined, executed with enough restraint to avoid triggering any single circuit breaker.

A modest IEEPA action that happens to constrain dollar liquidity. A federal pay adjustment that happens to make Board of Governors positions less competitive. A defense spending expansion that happens to overwhelm the Fed’s ability to manage aggregate demand. None of these, standing alone, constitutes an attack on central bank independence. Each has independent statutory authority. Each can be justified on its own terms. The cumulative effect — a slow, deniable narrowing of the space in which the Fed can operate independently — would be visible to specialists but opaque to the public and impossible for courts to address as a single case or controversy.

This is how institutions die. Not in a dramatic confrontation, not in a constitutional crisis, but in the gradual accumulation of individually reasonable decisions that collectively transform the institution into something unrecognizable. The Fed would retain its formal independence — its statutory mandate, its organizational structure, its ceremonial autonomy. It would lose its practical independence — its ability to make monetary policy decisions without regard to the political preferences of the sitting President.

The Eccles Building would still stand on Constitution Avenue. The Chair would still hold press conferences. The FOMC would still meet eight times a year. And none of it would matter, because the decisions that actually determine the trajectory of the American economy would be made elsewhere — in the Oval Office, in the Treasury Department, in the emergency declarations published quietly in the Federal Register.

A paper fortress, intact in appearance, hollow in function. Still standing, no longer occupied.

The tools to prevent this outcome exist. The ARTICLE ONE Act, introduced with bipartisan support, would require congressional approval of emergency declarations within thirty days. Judicial willingness to define the outer limits of emergency power — tested now, for the first time seriously, in the IEEPA tariff cases — could establish boundaries that constrain future abuse. Market discipline, the oldest and most brutal check on political folly, would impose catastrophic costs on any President who pushed too far too fast.

But these are all contingent checks. They require political will, judicial courage, and rational calculation — three commodities that history suggests are not always available when they are most needed. The statutory framework is permanent. The norms are not. And in a system where the law permits what norms prohibit, the law will eventually be used.

The question is not whether a President could break the Fed. The question is whether anyone would stop him. The NEA provides the tools. The Constitution provides no clear prohibition. The rest is politics.

And politics, unlike monetary policy, does not operate on a dual mandate.

This essay examines structural vulnerabilities in the legal framework governing presidential emergency powers and Federal Reserve independence. It does not advocate for any of the strategies described.