Labor board firings would leave Federal Reserve vulnerable, lawyers say

(Reuters) - President Donald Trump's firing of Democrats from two federal labor boards leaves the independence of the U.S. Federal Reserve vulnerable should his actions be allowed to stand, lawyers for the two fired individuals wrote on Tuesday in asking the Supreme Court to reject the Trump administration's case.

Allowing the firing of Cathy Harris from the Merit Systems Protection Board and Gwynne Wilcox from the National Labor Relations Board before their terms expired would have implications for agencies ranging from the National Transportation Safety Board to the Fed by paving the way for Trump to dismiss any of their independent directors at will, lawyers for both Harris and Wilcox wrote in separate briefs to the U.S. high court.

It "would greenlight chaos, including the potential destruction of the independent Federal Reserve on which the national economy relies," Harris' lawyers said.

The Supreme Court last week cleared the way for Trump to remove Harris and Wilcox for now. The stay gives the nine justices time to consider the Trump administration's formal request to block lower courts' orders to reinstate them while litigation over the firings continues.

The case is being closely followed by economists and other Fed watchers given the fractious relationship between Trump and Fed Chair Jerome Powell. Elevated from member of the Board of Governors to central bank head by Trump during his first term in the White House, Powell soon fell out of favor with the Republican president, who repeatedly threatened to try to fire him.

The Fed, created by an act of Congress in 1913, sets U.S. monetary policy independent of the executive branch. The seven-member board is appointed by the president with confirmation by the Senate, as is the Fed chair. But it has long been the operating assumption that a chair or board member could not be removed over political or policy disagreements.

Trump's removal of the Democrats from the two labor boards has raised concerns about the independence the Fed has long enjoyed - and on which rests much of its policymaking credibility.

"Of particular concern, the independence of the Federal Reserve would become uncertain - a situation that would have dire repercussions for the market," the lawyers for Wilcox wrote.

The lawyers for Harris, meanwhile, made more than two dozen references to the Fed and the risks to it as a bedrock of U.S. economic stability in their filing to the court.

"No matter how the Court couches a stay order, granting a stay in this case will empower the President to undermine the Federal Reserve tomorrow - which is precisely why the Court should deny the application," they wrote.

(Reporting by Dan Burns, Editing by Rosalba O'Brien)