Some of the Charges Stemming From George Floyd’s Death Should Trouble Criminal Justice Reformers

Activists who were outraged by George Floyd’s death welcomed the criminal charges against Derek Chauvin and three other former Minneapolis police officers who were involved in that horrifying incident. But some of those charges raise issues that would trouble many of the same criminal justice reformers if the context were different.

The second-degree manslaughter charge against Chauvin, the officer who kneeled on Floyd’s neck for nearly nine minutes, seems to easily fits the facts of the case. It alleges that Chauvin caused Floyd’s death “by his culpable negligence, creating an unreasonable risk and consciously [taking] the chances of causing great bodily harm to another.” That offense carries a maximum penalty of 10 years in prison.

The second-degree murder charge against Chauvin that Minnesota Attorney General Keith Ellison filed on June 3, by contrast, relies on the “felony murder” doctrine, a legal principle that criminal justice reformers have long criticized. That count, which carries a maximum penalty of 40 years in prison, alleges that Chauvin caused Floyd’s death without intending to do so “while committing or attempting to commit a felony offense”—namely, third-degree assault.

Critics of felony murder laws argue that they unjustly punish defendants who were peripherally involved in crimes that resulted in someone’s death, often in cases where they neither intended nor anticipated that outcome. Someone who participates in a burglary as a driver or a lookout, for example, could be convicted of murder if the burglar unexpectedly encounters the property owner and kills him during the ensuing struggle. A defendant’s involvement can be even more limited: In Florida, Lauren Krisai notes, a man received a life sentence because he lent his car to a friend, who used it to commit a home burglary in which the owner’s 18-year-old daughter was killed.

That case is a far cry from Chauvin’s, since he is charged with committing the assault that killed Floyd. But the felony murder charge against him means prosecutors do not have to prove the homicide was intentional, which would be required if he had been charged under the first subdivision of Minnesota’s second-degree murder statute.

That maneuver, notes Ted Sampsell-Jones, a professor at Mitchell Hamline School of Law in St. Paul, relies not only on the “highly controversial” felony murder doctrine but “a particularly weird form of it.” In a recent article at The Dispatch, Sampsell-Jones says “nearly all” jurisdictions that allow felony murder charges follow the “independent felony” rule, which says “the underlying felony—known as the predicate felony—must be separate from the act causing death.” That “generally means that assault and battery cannot serve as the predicate felonies for felony murder.”

Under the independent felony rule, an arsonist who sets a fire that unintentionally kills someone could be charged with felony murder, while a barroom brawler who hits someone and accidentally kills him could not. But Minnesota is “one of just a couple jurisdictions that has rejected the independent felony rule, and it therefore allows assault to serve as a predicate,” Sampsell-Jones writes. The upshot is that Chauvin can be convicted of second-degree murder, which otherwise requires proof of intent, even if he killed Floyd without meaning to do so. The elements are very similar to the allegations underlying the manslaughter charge, which carries a substantially lighter penalty, except that prosecutors have to prove Chauvin intended to commit an assault.

Chauvin also faces a third-degree murder charge, which alleges that he caused Floyd’s death by “perpetrating an act eminently dangerous to others and evincing a depraved mind, without regard for human life.” That charge, Harvard law professor Laurence Tribe and Minnesota criminal defense attorney Albert Turner Goins have argued, is not appropriate in this case, because Minnesota courts have restricted it to “reckless or wanton acts” committed “without special regard to their effect on any particular person.”

Sampsell-Jones expects Chauvin’s lawyers to raise that argument, but he thinks the case law is not as clear as Tribe and Goins imply. “There is definitely some [Minnesota] case law saying that,” he writes in an email, but there is also “case law to the contrary.” He notes that former Minneapolis police officer Mohamed Noor, who last year was sentenced to more than 12 years in prison for killing Justine Diamond after she called 911 to report a possible assault in the alley behind her house, was convicted of third-degree murder, “even though he pointed a gun at someone’s chest and pulled the trigger.”

In terms of the sentence Chauvin is apt to receive, the distinction between second-degree and third-degree murder may not matter. Although the maximum statutory penalty is higher for second-degree murder (40 vs. 25 years), the presumptive penalty for felony (unintentional) murder under Minnesota’s sentencing guidelines is the same: 150 months, which is the sentence that Noor received.

The aiding and abetting charges against the three other officers who participated in Floyd’s arrest—J.A. Kueng, Thomas Lane, and Tou Thao likewise are not as straightforward as they might seem. Kueng and Lane both helped restrain Floyd, although Lane repeatedly suggested that he should be rolled from his stomach to his side, presumably to reduce the risk of suffocation. Chauvin rejected those suggestions. Thao, meanwhile, not only failed to intervence but physically prevented bystanders from doing so.

Does that mean Kueng, Lane, and Thao “intentionally aided” Chauvin in the commission of second-degree manslaughter or second-degree murder, as the criminal complaints against them allege? Those charges, Sampsell-Jones notes in another Dispatch article, are “legally valid under Minnesota law” but “rely on some fringe doctrines of accomplice liability.” Those doctrines, “which have long been criticized by progressive reformers, create expansive strict liability for minor participants in group crimes.”

Accomplices are “criminally liable” for the offense committed by the person they assisted, meaning that Kueng, Lane, and Thao theoretically could receive the same penalty as Chauvin, even though they had much less culpability in Floyd’s death. “Giving accomplices the same sentence is in fact the presumptive norm,” Sampsell-Jones says in an email, “though minimal role in the offense can be the basis for a downward departure.”

While these three officers’ inaction during Chauvin’s assault on Floyd was reprehensible, it is not enough to convict them as accomplices. “In general the failure to act is not a crime,” Sampsell-Jones writes. “As the Minnesota Supreme Court has stated, mere presence at the scene of a crime and passive acquiescence are insufficient.”

Assuming that the cases against the three alleged accomplices go to trial, prosecutors would have to show that they took actions that facilitated Chauvin’s crimes and that they intended to do so. Two principles of accomplice liability would make the prosecution’s task easier.

Under “the natural and probable consequences doctrine,” the officers could be convicted if they aided Chauvin’s assault and Floyd’s death was a reasonably foreseeable consequence. And under the felony murder doctrine, they could be convicted if they intentionally aided the assault, even if they did not intend or expect to cause Floyd’s death. Under Minnesota law, Sampsell-Jones says, “an intent to commit or aid a misdemeanor assault is sufficient” to make a defendant guilty of murder. He adds that “Minnesota may be the only American jurisdiction where a simple misdemeanor assault can get bootstrapped all the way up to murder.”

Sampsell-Jones worries that reformers, in their understandable zeal to see justice for Floyd, are compromising principles of justice they otherwise are keen to defend. Some have even argued that Chauvin should have been charged with first-degree murder, which requires premeditation as well as intent.

“An irony of this case is that the expansive liability doctrines, which progressive lawyers and academics have sought to reform for years, are now necessary to a high-profile prosecution that is demanded by progressive activists and pursued by a progressive attorney general,” Sampsell-Jones writes. “But in a system devoted to the rule of law, the desire for retribution must be checked. Just because we want to convict these guys doesn’t mean it’s a good idea to abandon existing limitations on first-degree murder or accomplice liability—any more than it would be a good idea to abandon the beyond a reasonable doubt standard.”

Criminal justice reform “should mean abolishing fringy doctrines of expansive liability—such as Minnesota’s assault-felony-murder doctrine,” Sampsell-Jones says. “The cause of criminal justice reform is more important than the result in this case. Locking a few more humans in cages will not create the systematic reform we need. Justice for George should mean much more than just sending these four cops to prison.”

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The PROMESA Board Members are not “Officers of the United States.” So what are they?

[This post is co-authored with Professor Seth Barrett Tillman]

Recently, the Supreme Court decided Financial Oversight and Management Bd. for Puerto Rico v. Aurelius Investment, LLC. This case considered the status of members of the Financial Oversight and Management Board for Puerto Rico, who are appointed by the President without the Senate’s advice and consent. These positions were created by The Puerto Rico Oversight, Management, and Economic Stability Act of 2016 (PROMESA).

All nine Justices agreed that the appointment of these board members is not subject to the strictures of the Appointments Clause: that is, appointment by the President, with advice-and-consent by the Senate. All nine Justices also agreed that these board members are not “officers of the United States.” However, the Justices parted company on the next question: what precisely are the PROMESA board members? The majority opinion by Justice Breyer punts on this question. Justice Thomas’s concurrence hints at the answer. And Justice Sotomayor’s concurrence suggests these board members occupy some other type of position in a “zone of twilight.” This case illustrates that the precise characterization of federal positions is important. We cannot simply presume that the Constitution indiscriminately refers to different types of “offices” and “officers.” Our taxonomy provides a better answer: Article IV Territorial Officers Hold “Office[s] under the Authority of the United States,” and are bound by the Sinecure Clause.

Justice Breyer’s Majority Opinion

Justice Breyer’s majority opinion is largely consistent with our reading. He makes three broad points.

First, Justice Breyer suggests in at least four places that all “officers of the United States” must be appointed pursuant to the Appointments Clause (emphases added):

  • “In our view, the Appointments Clause governs the appointments of all officers of the United States, including those located in Puerto Rico.” 
  • But, like the Court of Appeals, we believe the Appointments Clause restricts the appointment of all officers of the United States, including those who carry out their powers and duties in or in relation to Puerto Rico.
  • That text [of the Appointments Clause] firmly indicates that it applies to the appointment of all “Officers of the United States.” And history confirms this reading.
  • Given the Constitution’s structure, this history, roughly analogous case law, and the absence of any conflicting authority, we conclude that the Appointments Clause constrains the appointments power as to all “Officers of the United States,” even when those officers exercise power in or related to Puerto Rico.

We agree. The Appointments Clause provides:

[The President] shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

In our view, the phrase “Officers of the United States” refers to appointed positions in the Executive and Judicial Branches. This language does not refer to appointed positions in the Legislative Branch. The Appointments Clause defines the phrase “Officers of the United States,” and, generally, how they are appointed: all such appointments are made to positions, which have been established by federal statute, in the executive and judicial branches. This category includes principal officers and inferior officers. Each of these positions must be created “by law”; that is through bicameralism and presentment. And all of these positions must be appointed.

We acknowledge that these statements could be consistent with an alternate reading of the Appointments Clause: that there are some “officers of the United States” who are not appointed. In other words, the Appointments Clause only refers to those “officers of the United States” who are appointed. But there are other elected “officers of the United States.” Some scholars, for example, maintain that the President is an “officer of the United States.” We disagree with this position for reasons we will explain in a forthcoming paper. But we do not think Justice Breyer was hinting at this alternate view. Rather, the Court seems to be saying that all “officers of the United States” must be appointed pursuant to the Appointments Clause.

Second, Justice Breyer recognizes that the phrase “officers of the United States” has limits. That is, not all positions–or, even, all appointed positions–created by federal statute are “officers of the United States.” Here, he writes that the creation of “local offices,” whose duties are “primarily local in nature,” takes the Board members outside the ambit of the Appointments Clause.

Yet two provisions of the Constitution empower Congress to create local offices for the District of Columbia and for Puerto Rico and the Territories. See Art. I, §8, cl. 17; Art. IV, §3, cl. 2. And the Clause’s term “Officers of the United States” has never been understood to cover those whose powers and duties are primarily local in nature and derive from these two constitutional provisions.

Third, Justice Breyer acknowledges that if the Board members are not “officers of the United States,” they must be “some other type of officer.”

If they are not officers of the United States, but instead are some other type of officer, the Appointments Clause says nothing about them.

What is that “other type of officer”? Justice Breyer does not give a direct answer. But he hints that there may be other types of federal officers.

Longstanding practice indicates that a federal law’s creation of an office in this context does not automatically make its holder an “Officer of the United States.”

That is, a federal law can create another type of federal officer, even one that resides outside the three branches: for example, the Article IV territorial officers on the PROMESA Board.

Justice Thomas’s Concurring Opinion

Justice Thomas also concludes that the PROMESA “Territorial officials” are not “officers of the United States.” But he relies on different reasoning than does the majority:

Territorial officials performing duties created under Article IV of the Constitution are not federal officers within the original meaning of the phrase “Officers of the United States.” Since the founding, this Court has recognized a distinction between Article IV power and the powers of the National Government in Articles I, II, and III. The founding generation understood the phrase “Officers of the United States” to refer to officers exercising the powers of the National Government, not officers solely exercising Article IV territorial power. Because the Board’s members perform duties pursuant to Article IV, they do not qualify as “Officers of the United States.”

Justice Thomas suggests that positions that are not authorized by Articles I, II, and III–in our view, positions outside the three branches of government–are not “officers of the United States.” (We do not think Article I positions, like Representatives, Senators, as well as appointed positions in the Legislative Branch, such as the Clerk of the House and the Secretary of the Senate, are “officers of the United States.”) Therefore, a position created pursuant to Article IV cannot fall within the ambit of the Appointments Clause. 

But what are the PROMESA Board members if they are not “officers of the United States”? Where do such “territorial officials” fit within the Constitution’s taxonomy of “offices” and “officers”?

Justice Sotomayor’s Concurring Opinion

Justice Sotomayor “reluctantly concur[red] in judgment.” She agrees with the majority that the PROMESA Board members are not “officers of the United States.” But she suggests that they should be considered “officers of Puerto Rico.”

One would think the Puerto Rican home rule that resulted from that mutual enterprise might affect whether officers later installed by the Federal Government are properly considered officers of Puerto Rico rather than “Officers of the United States” subject to the Appointments Clause. U. S. Const., Art. II, §2, cl. 2.

Justice Sotomayor added that the Board members float in a “twilight zone of accountability.”

The Board members, tasked with determining the financial fate of a self-governing Territory, exist in a twilight zone of accountability, neither selected by Puerto Rico itself nor subject to the strictures of the Appointments Clause. I am skeptical that the Constitution countenances this freewheeling exercise of control over a population that the Federal Government has explicitly agreed to recognize as operating under a government of their own choosing, pursuant to a constitution of their own choosing.

We love this sterling allusion to Justice Jackson’s Youngstown concurrence allusion. And, like the prior opinions, the concurrence does not resolve where the PROMESA Board members fall in the Constitution’s taxonomy. 

Article IV Territorial Officers Hold “Office under the Authority of the United States”

Article IV territorial officers are not “officers of the United States.” They are not appointed pursuant to the Appointments Clause. Moreover, we think these territorial officers do not hold “office . . . under the United States.” These positions exist outside the three branches of the federal government. Justice Thomas’s concurrence alludes to this point in the passage we quoted above. According to Justice Thomas, the power to authorize territorial positions comes from Article IV; therefore such positions are not within the three branches of government. But there is another phrase in the Constitution that provides a more natural fit for Article IV territorial officers.

The Ineligibility Clause, also known as the Sinecure Clause, states, “[n]o Senator or Representative shall, during the Time for which he was elected, be appointed to any civil Office under the Authority of the United States, which shall have been created, or the Emoluments whereof shall have been [i]ncreased during such time. . . .”  This Clause is the only provision in the Constitution that uses the phrase “civil Office under the Authority of the United States.” Who holds such an office? In our view the phrase “civil Office under the Authority of the United States” encompasses all officers of the United States, but also refers to a broader category of irregularly appointed officers. 

Congress has the authority to “grant letters of Marque and Reprisal.” These letters authorized private parties (known as privateers) to engage in hostilities against foreign states, and seize property.  The holders of such letters have an irregular type of federal position, at least by modern conceptions. Such holders have a special authority conferred upon them, and their positions are outside the regular or permanent government, and its bureaucracy. We think the Ineligibility Clause, also known as the Sinecure Clause, places limits on who can receive a letter of Marque and Reprisal.

The PROMESA Board members are best considered “office[s] under the authority of the United States.” In our view, the PROMESA Board Members are subject to the Sinecure Clause. The positions were created by the 114th Congress in 2016. As a result, members of the 114th Congress could not have been appointed to PROMESA during the 114th Congress. This prohibition makes some sense, especially because the positions could be appointed without Senate advice-and-consent. If PROMESA Board members were not subject to the Sinecure Clause, the President could reward loyal members of Congress with potentially lucrative positions and emoluments. The Sinecure Clause was designed to eliminate this risk of self-aggrandizement. Members of the House of Representatives who were in the 114th Congress can now be appointed to PROMESA. Senators in office during the 114th Congress would be bound by the Sinecure Clause in until circa January 2021. 

Many scholars read the phrase “officers of the United States” in an expansive, if not quasi-literal fashion. They argue that this phrase includes all federal positions, but excludes state positions. The Supreme Court has now recognized that there are some federal positions, i.e., positions created by federal statute, that are not “officers of the United States.” This holding provides some judicial recognition that the phrase “officers of the United States” is not all-encompassing. In other words, the Court has rejected the maximalist reading of the phrase “officer of the United States.” Justice Breyer wrote that “[t]he language at issue does not offer us much guidance for understanding the key term ‘of the United States.'” Why? He explained, “[t]he text suggests a distinction between federal officers—officers exercising power of the National Government—and nonfederal officers—officers exercising power of some other government.” But the Court rejects that simplistic distinction. Rather, the dividing line between who is and who is not an “officer of the United States” is not a mere federal-versus-state dichotomy. According to both Justice Breyer, as well as Justice Thomas, the answer is far more complex. The Court and the concurrences do not draw that line based on a literal reading of the word “officer” and the modifying phrase: “of the United States.” Instead, the Court carefully considered historical practice–and in particular the practices of the First Congress.

We have long argued (and long before President Trump’s election) that the Framers used divergent “office”- and “officer”-language throughout the Constitution to refer to different categories of positions. The phrase “officers of the United States” is not coterminous with the phrase “office . . . the United States.” To this day, important legal questions turn on these distinctions. For example, does the President hold an “office . . . under the United States” for purposes of the Foreign Emoluments Clause? In the PROMESA case, the Court held that territorial officers are not “officers of the United States” even though these positions are established by a federal statute. For that reason and others, we submit, courts should not simply assume that the President automatically holds an “office . . . under the United States,” solely because he holds a federal position. 

We intend to share our comprehensive article on the Offices and Officers of the Constitution in due course.

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We Filmed the Cops. People Changed Their Minds.

In the years since the police killing of Michael Brown in Ferguson, Missouri, sparked a wave of protests against abusive law enforcement, there has been a remarkable shift in public opinion about race and policing. 

A Washington Post poll released this week found that 69 percent of Americans say Floyd’s killing represents a systemic problem with policing, while just 29 percent say it’s an isolated incident; six years ago, the Post reports, more than half of Americans saw police killings of unarmed black men as isolated events, with just 43 percent viewing them as part of a wider trend. 

That shift has produced bipartisan support for activism against police violence. The Post poll found that 74 percent of Americans support recent protests sparked by the police killing of George Floyd in Minneapolis. Democrats were more likely to support the protests, but a majority of Republicans and independents backed them too. A Monmouth poll released last week found that 57 percent of Americans, including about half of white Americans, said police officers were generally more likely to treat black people unfairly than to mistreat white people, which The New York Times describes as a “drastic change” in public attitudes about racial disparities in policing.

As with nearly all instances of rapid social change, there are many factors at work. The Black Lives Matter movement has tirelessly emphasized racial disparities in law enforcement and made police reform an urgent national priority. Conservative activists have embraced criminal justice reforms that reject tough-on-crime policies. News coverage has become less deferential to police narratives. The political class has, in some instances, distanced itself from law enforcement. Social media has proven a potent tool for activists to organize and get out their message. None of these forces should be discounted. 

But perhaps the simplest story one can tell is this: We filmed the cops, and people changed their minds. 

For the last two decades, America has conducted an experiment in mass videography. Virtually everyone in the country now carries a camera in his or her pocket. In addition, our highways, streets, and sidewalks are watched by an array of public and private digital eyes, recording, if not everything, then much of the nation’s public interactions—including with the police. 

In the early days of mass camera adoption, cops resisted public attempts to film them, often attempting to shut down and even destroy videos of their work taken by citizens. 

It’s not hard to understand the resistance. Those ubiquitous cameras—on cellphones, on dashboards, in stores, on police uniforms—have repeatedly given the public deeply disturbing glimpses into how officers of the law do their jobs. 

They showed us the horrific final moments of George Floyd and Eric Garner, six years apart, as they slowly asphyxiated from the force that police officers exerted on their bodies, each man gasping for breath, crying out for their lives, struggling to form the words, “I can’t breathe.”

They showed us the shots a South Carolina cop fired into Walter Scott’s back as he fled on foot after being pulled over for a broken taillight. They showed us the 40 seconds during which Minnesota cafeteria worker Philando Castille was pulled over by a Minneapolis patrolman and then shot to death after disclosing that he was carrying a firearm. They showed us the arrest of Sandra Bland, a Texas woman pulled over for failing to use a turn signal, as an angry cop pointed a weapon at her and screamed, “I will light you up!” (A few days later, she was found in her jail cell, hanged to death.) 

And over the last two weeks, cameras have given us a parade of videos showing how some in law enforcement behave when facing a national outcry over abuses of power and excessive use of force: with abuses of power and excessive use of force. 

Researchers have spent years digging into crime data and arrest reports in order to demonstrate the racial disparities in police work and sentencing. But charts and graphs and studies, while valuable, can only do so much. Images inevitably have a more visceral impact. 

Each video is an act of documentary filmmaking, and each one helps to tell a story. Although the particulars differ, that story has been remarkably consistent: police abusing their power to violent ends, especially when interacting with minorities. Tell a story enough times, show it happening again and again and again, and it reshapes the way people see the world. Over time, in the public mind, a pile-up of anecdotes eventually becomes data. 

As University of Wisconsin journalism professor Douglas McLeod, who studies the way news consumption affects culture and politics, recently told The New York Times, the steady stream of videos depicting police abuse, in combination with the distribution of those videos through social media, has changed the way people see law enforcement abuses: 

Dr. McLeod said that as videos showing police brutality against black people have appeared relentlessly on social media, they have helped persuade skeptical Americans that an endemic problem exists. “When these things accumulate over time, and we start to see more and more of these images, the evidence starts to become more incontrovertible,” he said.

These videos not only show us what police do; they show us how that differs from what police say they do. The Minneapolis Police Department initially said in a press release that George Floyd’s death stemmed from a “medical incident during a police interaction.” The video shows an emotionless officer kneeling on Floyd’s neck for nearly nine minutes as the victim begs for his mother and his life. Buffalo police said an elderly protester “tripped and fell”; a video shows he was pushed by two officers wearing face shields and carrying batons. The Texas cop who pulled Sandra Bland out of her car said he was afraid; the video Bland took of her own arrest shows that he was angry—and she was the one who was exhibiting fear. 

The tragedy is that these videos could not save the life of George Floyd, or of any of the other victims of police brutality who have come since. Images alone cannot substitute for action. But they can be a motivating force—a rallying point for a ground-up movement demanding change. 

There is already some evidence that this has begun: In a handful of large cities that have adopted reforms designed to reduce the use of force—including Los Angeles, San Francisco, Philadelphia, and Baltimore—police killings have dropped in recent years. The data, according to a FiveThirtyEight report on trends in police killings, suggest that “reforms may be working in the places that have implemented them. Many of these reforms were initiated in response to protests and public outcry over high-profile deaths at the hands of police.” 

Abusive officers recently caught on video, meanwhile, are being swiftly disciplined: The two Buffalo officers who pushed the elderly protester were suspended without pay. All four officers involved in the incident that led to Floyd’s death have already been charged. The officer whose chokehold resulted in Eric Garner’s 2014 death, in contrast, wasn’t fired until 2019

Minneapolis, meanwhile, is backing out of negotiations for a new contract with its police union. And when cameras aren’t present, it’s a point of contention: Among the causes for outrage in the police killing of Breonna Taylor during a no-knock raid in Louisville, Kentucky, this year is that the cops weren’t wearing body cameras. Going forward, the city will require police to wear them. Earlier this month, the city’s police chief was relieved from duty after it was discovered that officers involved in a separate shooting did not activate their cameras. 

It’s true that some studies have found that body cameras do little to alter police behavior. The look of cold, almost bored, indifference on the face of the officer who knelt on Floyd, despite the conspicuous presence of onlookers filming the incident, suggests the limits of video to directly change law enforcement behavior; a police department press release noted that active body cams were worn during the incident. 

The numerous videos showing police abuse during demonstrations against police abuse provide more evidence that cameras alone don’t stop police misconduct. As Reason‘s Eric Boehm wrote, it has sometimes seemed that the nation’s police are determined to demonstrate exactly why people are protesting them in the first place. 

Yet even if videos aren’t directly changing police behavior, they are almost certainly contributing to the public’s shifting perception of that behavior, bolstering the case made by activists by making it harder and harder to deny. In turn, they are putting reforms that might have seemed difficult or impossible just a few years ago within reach. On its own, filming police brutality isn’t enough. But each new clip that circulates shows us the vivid and excruciating reality of what has happened and what is happening—and demonstrates, over and over again, what desperately needs to change. 

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The PROMESA Board Members are not “Officers of the United States.” So what are they?

[This post is co-authored with Professor Seth Barrett Tillman]

Recently, the Supreme Court decided Financial Oversight and Management Bd. for Puerto Rico v. Aurelius Investment, LLC. This case considered the status of members of the Financial Oversight and Management Board for Puerto Rico, who are appointed by the President without the Senate’s advice and consent. These positions were created by The Puerto Rico Oversight, Management, and Economic Stability Act of 2016 (PROMESA).

All nine Justices agreed that the appointment of these board members is not subject to the strictures of the Appointments Clause: that is, appointment by the President, with advice-and-consent by the Senate. All nine Justices also agreed that these board members are not “officers of the United States.” However, the Justices parted company on the next question: what precisely are the PROMESA board members? The majority opinion by Justice Breyer punts on this question. Justice Thomas’s concurrence hints at the answer. And Justice Sotomayor’s concurrence suggests these board members occupy some other type of position in a “zone of twilight.” This case illustrates that the precise characterization of federal positions is important. We cannot simply presume that the Constitution indiscriminately refers to different types of “offices” and “officers.” Our taxonomy provides a better answer: Article IV Territorial Officers Hold “Office[s] under the Authority of the United States,” and are bound by the Sinecure Clause.

Justice Breyer’s Majority Opinion

Justice Breyer’s majority opinion is largely consistent with our reading. He makes three broad points.

First, Justice Breyer suggests in at least four places that all “officers of the United States” must be appointed pursuant to the Appointments Clause (emphases added):

  • “In our view, the Appointments Clause governs the appointments of all officers of the United States, including those located in Puerto Rico.” 
  • But, like the Court of Appeals, we believe the Appointments Clause restricts the appointment of all officers of the United States, including those who carry out their powers and duties in or in relation to Puerto Rico.
  • That text [of the Appointments Clause] firmly indicates that it applies to the appointment of all “Officers of the United States.” And history confirms this reading.
  • Given the Constitution’s structure, this history, roughly analogous case law, and the absence of any conflicting authority, we conclude that the Appointments Clause constrains the appointments power as to all “Officers of the United States,” even when those officers exercise power in or related to Puerto Rico.

We agree. The Appointments Clause provides:

[The President] shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

In our view, the phrase “Officers of the United States” refers to appointed positions in the Executive and Judicial Branches. This language does not refer to appointed positions in the Legislative Branch. The Appointments Clause defines the phrase “Officers of the United States,” and, generally, how they are appointed: all such appointments are made to positions, which have been established by federal statute, in the executive and judicial branches. This category includes principal officers and inferior officers. Each of these positions must be created “by law”; that is through bicameralism and presentment. And all of these positions must be appointed.

We acknowledge that these statements could be consistent with an alternate reading of the Appointments Clause: that there are some “officers of the United States” who are not appointed. In other words, the Appointments Clause only refers to those “officers of the United States” who are appointed. But there are other elected “officers of the United States.” Some scholars, for example, maintain that the President is an “officer of the United States.” We disagree with this position for reasons we will explain in a forthcoming paper. But we do not think Justice Breyer was hinting at this alternate view. Rather, the Court seems to be saying that all “officers of the United States” must be appointed pursuant to the Appointments Clause.

Second, Justice Breyer recognizes that the phrase “officers of the United States” has limits. That is, not all positions–or, even, all appointed positions–created by federal statute are “officers of the United States.” Here, he writes that the creation of “local offices,” whose duties are “primarily local in nature,” takes the Board members outside the ambit of the Appointments Clause.

Yet two provisions of the Constitution empower Congress to create local offices for the District of Columbia and for Puerto Rico and the Territories. See Art. I, §8, cl. 17; Art. IV, §3, cl. 2. And the Clause’s term “Officers of the United States” has never been understood to cover those whose powers and duties are primarily local in nature and derive from these two constitutional provisions.

Third, Justice Breyer acknowledges that if the Board members are not “officers of the United States,” they must be “some other type of officer.”

If they are not officers of the United States, but instead are some other type of officer, the Appointments Clause says nothing about them.

What is that “other type of officer”? Justice Breyer does not give a direct answer. But he hints that there may be other types of federal officers.

Longstanding practice indicates that a federal law’s creation of an office in this context does not automatically make its holder an “Officer of the United States.”

That is, a federal law can create another type of federal officer, even one that resides outside the three branches: for example, the Article IV territorial officers on the PROMESA Board.

Justice Thomas’s Concurring Opinion

Justice Thomas also concludes that the PROMESA “Territorial officials” are not “officers of the United States.” But he relies on different reasoning than does the majority:

Territorial officials performing duties created under Article IV of the Constitution are not federal officers within the original meaning of the phrase “Officers of the United States.” Since the founding, this Court has recognized a distinction between Article IV power and the powers of the National Government in Articles I, II, and III. The founding generation understood the phrase “Officers of the United States” to refer to officers exercising the powers of the National Government, not officers solely exercising Article IV territorial power. Because the Board’s members perform duties pursuant to Article IV, they do not qualify as “Officers of the United States.”

Justice Thomas suggests that positions that are not authorized by Articles I, II, and III–in our view, positions outside the three branches of government–are not “officers of the United States.” (We do not think Article I positions, like Representatives, Senators, as well as appointed positions in the Legislative Branch, such as the Clerk of the House and the Secretary of the Senate, are “officers of the United States.”) Therefore, a position created pursuant to Article IV cannot fall within the ambit of the Appointments Clause. 

But what are the PROMESA Board members if they are not “officers of the United States”? Where do such “territorial officials” fit within the Constitution’s taxonomy of “offices” and “officers”?

Justice Sotomayor’s Concurring Opinion

Justice Sotomayor “reluctantly concur[red] in judgment.” She agrees with the majority that the PROMESA Board members are not “officers of the United States.” But she suggests that they should be considered “officers of Puerto Rico.”

One would think the Puerto Rican home rule that resulted from that mutual enterprise might affect whether officers later installed by the Federal Government are properly considered officers of Puerto Rico rather than “Officers of the United States” subject to the Appointments Clause. U. S. Const., Art. II, §2, cl. 2.

Justice Sotomayor added that the Board members float in a “twilight zone of accountability.”

The Board members, tasked with determining the financial fate of a self-governing Territory, exist in a twilight zone of accountability, neither selected by Puerto Rico itself nor subject to the strictures of the Appointments Clause. I am skeptical that the Constitution countenances this freewheeling exercise of control over a population that the Federal Government has explicitly agreed to recognize as operating under a government of their own choosing, pursuant to a constitution of their own choosing.

We love this sterling allusion to Justice Jackson’s Youngstown concurrence allusion. And, like the prior opinions, the concurrence does not resolve where the PROMESA Board members fall in the Constitution’s taxonomy. 

Article IV Territorial Officers Hold “Office under the Authority of the United States”

Article IV territorial officers are not “officers of the United States.” They are not appointed pursuant to the Appointments Clause. Moreover, we think these territorial officers do not hold “office . . . under the United States.” These positions exist outside the three branches of the federal government. Justice Thomas’s concurrence alludes to this point in the passage we quoted above. According to Justice Thomas, the power to authorize territorial positions comes from Article IV; therefore such positions are not within the three branches of government. But there is another phrase in the Constitution that provides a more natural fit for Article IV territorial officers.

The Ineligibility Clause, also known as the Sinecure Clause, states, “[n]o Senator or Representative shall, during the Time for which he was elected, be appointed to any civil Office under the Authority of the United States, which shall have been created, or the Emoluments whereof shall have been [i]ncreased during such time. . . .”  This Clause is the only provision in the Constitution that uses the phrase “civil Office under the Authority of the United States.” Who holds such an office? In our view the phrase “civil Office under the Authority of the United States” encompasses all officers of the United States, but also refers to a broader category of irregularly appointed officers. 

Congress has the authority to “grant letters of Marque and Reprisal.” These letters authorized private parties (known as privateers) to engage in hostilities against foreign states, and seize property.  The holders of such letters have an irregular type of federal position, at least by modern conceptions. Such holders have a special authority conferred upon them, and their positions are outside the regular or permanent government, and its bureaucracy. We think the Ineligibility Clause, also known as the Sinecure Clause, places limits on who can receive a letter of Marque and Reprisal.

The PROMESA Board members are best considered “office[s] under the authority of the United States.” In our view, the PROMESA Board Members are subject to the Sinecure Clause. The positions were created by the 114th Congress in 2016. As a result, members of the 114th Congress could not have been appointed to PROMESA during the 114th Congress. This prohibition makes some sense, especially because the positions could be appointed without Senate advice-and-consent. If PROMESA Board members were not subject to the Sinecure Clause, the President could reward loyal members of Congress with potentially lucrative positions and emoluments. The Sinecure Clause was designed to eliminate this risk of self-aggrandizement. Members of the House of Representatives who were in the 114th Congress can now be appointed to PROMESA. Senators in office during the 114th Congress would be bound by the Sinecure Clause in until circa January 2021. 

Many scholars read the phrase “officers of the United States” in an expansive, if not quasi-literal fashion. They argue that this phrase includes all federal positions, but excludes state positions. The Supreme Court has now recognized that there are some federal positions, i.e., positions created by federal statute, that are not “officers of the United States.” This holding provides some judicial recognition that the phrase “officers of the United States” is not all-encompassing. In other words, the Court has rejected the maximalist reading of the phrase “officer of the United States.” Justice Breyer wrote that “[t]he language at issue does not offer us much guidance for understanding the key term ‘of the United States.'” Why? He explained, “[t]he text suggests a distinction between federal officers—officers exercising power of the National Government—and nonfederal officers—officers exercising power of some other government.” But the Court rejects that simplistic distinction. Rather, the dividing line between who is and who is not an “officer of the United States” is not a mere federal-versus-state dichotomy. According to both Justice Breyer, as well as Justice Thomas, the answer is far more complex. The Court and the concurrences do not draw that line based on a literal reading of the word “officer” and the modifying phrase: “of the United States.” Instead, the Court carefully considered historical practice–and in particular the practices of the First Congress.

We have long argued (and long before President Trump’s election) that the Framers used divergent “office”- and “officer”-language throughout the Constitution to refer to different categories of positions. The phrase “officers of the United States” is not coterminous with the phrase “office . . . the United States.” To this day, important legal questions turn on these distinctions. For example, does the President hold an “office . . . under the United States” for purposes of the Foreign Emoluments Clause? In the PROMESA case, the Court held that territorial officers are not “officers of the United States” even though these positions are established by a federal statute. For that reason and others, we submit, courts should not simply assume that the President automatically holds an “office . . . under the United States,” solely because he holds a federal position. 

We intend to share our comprehensive article on the Offices and Officers of the Constitution in due course.

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We Filmed the Cops. People Changed Their Minds.

In the years since the police killing of Michael Brown in Ferguson, Missouri, sparked a wave of protests against abusive law enforcement, there has been a remarkable shift in public opinion about race and policing. 

A Washington Post poll released this week found that 69 percent of Americans say Floyd’s killing represents a systemic problem with policing, while just 29 percent say it’s an isolated incident; six years ago, the Post reports, more than half of Americans saw police killings of unarmed black men as isolated events, with just 43 percent viewing them as part of a wider trend. 

That shift has produced bipartisan support for activism against police violence. The Post poll found that 74 percent of Americans support recent protests sparked by the police killing of George Floyd in Minneapolis. Democrats were more likely to support the protests, but a majority of Republicans and independents backed them too. A Monmouth poll released last week found that 57 percent of Americans, including about half of white Americans, said police officers were generally more likely to treat black people unfairly than to mistreat white people, which The New York Times describes as a “drastic change” in public attitudes about racial disparities in policing.

As with nearly all instances of rapid social change, there are many factors at work. The Black Lives Matter movement has tirelessly emphasized racial disparities in law enforcement and made police reform an urgent national priority. Conservative activists have embraced criminal justice reforms that reject tough-on-crime policies. News coverage has become less deferential to police narratives. The political class has, in some instances, distanced itself from law enforcement. Social media has proven a potent tool for activists to organize and get out their message. None of these forces should be discounted. 

But perhaps the simplest story one can tell is this: We filmed the cops, and people changed their minds. 

For the last two decades, America has conducted an experiment in mass videography. Virtually everyone in the country now carries a camera in his or her pocket. In addition, our highways, streets, and sidewalks are watched by an array of public and private digital eyes, recording, if not everything, then much of the nation’s public interactions—including with the police. 

In the early days of mass camera adoption, cops resisted public attempts to film them, often attempting to shut down and even destroy videos of their work taken by citizens. 

It’s not hard to understand the resistance. Those ubiquitous cameras—on cellphones, on dashboards, in stores, on police uniforms—have repeatedly given the public deeply disturbing glimpses into how officers of the law do their jobs. 

They showed us the horrific final moments of George Floyd and Eric Garner, six years apart, as they slowly asphyxiated from the force that police officers exerted on their bodies, each man gasping for breath, crying out for their lives, struggling to form the words, “I can’t breathe.”

They showed us the shots a South Carolina cop fired into Walter Scott’s back as he fled on foot after being pulled over for a broken taillight. They showed us the 40 seconds during which Minnesota cafeteria worker Philando Castille was pulled over by a Minneapolis patrolman and then shot to death after disclosing that he was carrying a firearm. They showed us the arrest of Sandra Bland, a Texas woman pulled over for failing to use a turn signal, as an angry cop pointed a weapon at her and screamed, “I will light you up!” (A few days later, she was found in her jail cell, hanged to death.) 

And over the last two weeks, cameras have given us a parade of videos showing how some in law enforcement behave when facing a national outcry over abuses of power and excessive use of force: with abuses of power and excessive use of force. 

Researchers have spent years digging into crime data and arrest reports in order to demonstrate the racial disparities in police work and sentencing. But charts and graphs and studies, while valuable, can only do so much. Images inevitably have a more visceral impact. 

Each video is an act of documentary filmmaking, and each one helps to tell a story. Although the particulars differ, that story has been remarkably consistent: police abusing their power to violent ends, especially when interacting with minorities. Tell a story enough times, show it happening again and again and again, and it reshapes the way people see the world. Over time, in the public mind, a pile-up of anecdotes eventually becomes data. 

As University of Wisconsin journalism professor Douglas McLeod, who studies the way news consumption affects culture and politics, recently told The New York Times, the steady stream of videos depicting police abuse, in combination with the distribution of those videos through social media, has changed the way people see law enforcement abuses: 

Dr. McLeod said that as videos showing police brutality against black people have appeared relentlessly on social media, they have helped persuade skeptical Americans that an endemic problem exists. “When these things accumulate over time, and we start to see more and more of these images, the evidence starts to become more incontrovertible,” he said.

These videos not only show us what police do; they show us how that differs from what police say they do. The Minneapolis Police Department initially said in a press release that George Floyd’s death stemmed from a “medical incident during a police interaction.” The video shows an emotionless officer kneeling on Floyd’s neck for nearly nine minutes as the victim begs for his mother and his life. Buffalo police said an elderly protester “tripped and fell”; a video shows he was pushed by two officers wearing face shields and carrying batons. The Texas cop who pulled Sandra Bland out of her car said he was afraid; the video Bland took of her own arrest shows that he was angry—and she was the one who was exhibiting fear. 

The tragedy is that these videos could not save the life of George Floyd, or of any of the other victims of police brutality who have come since. Images alone cannot substitute for action. But they can be a motivating force—a rallying point for a ground-up movement demanding change. 

There is already some evidence that this has begun: In a handful of large cities that have adopted reforms designed to reduce the use of force—including Los Angeles, San Francisco, Philadelphia, and Baltimore—police killings have dropped in recent years. The data, according to a FiveThirtyEight report on trends in police killings, suggest that “reforms may be working in the places that have implemented them. Many of these reforms were initiated in response to protests and public outcry over high-profile deaths at the hands of police.” 

Abusive officers recently caught on video, meanwhile, are being swiftly disciplined: The two Buffalo officers who pushed the elderly protester were suspended without pay. All four officers involved in the incident that led to Floyd’s death have already been charged. The officer whose chokehold resulted in Eric Garner’s 2014 death, in contrast, wasn’t fired until 2019

Minneapolis, meanwhile, is backing out of negotiations for a new contract with its police union. And when cameras aren’t present, it’s a point of contention: Among the causes for outrage in the police killing of Breonna Taylor during a no-knock raid in Louisville, Kentucky, this year is that the cops weren’t wearing body cameras. Going forward, the city will require police to wear them. Earlier this month, the city’s police chief was relieved from duty after it was discovered that officers involved in a separate shooting did not activate their cameras. 

It’s true that some studies have found that body cameras do little to alter police behavior. The look of cold, almost bored, indifference on the face of the officer who knelt on Floyd, despite the conspicuous presence of onlookers filming the incident, suggests the limits of video to directly change law enforcement behavior; a police department press release noted that active body cams were worn during the incident. 

The numerous videos showing police abuse during demonstrations against police abuse provide more evidence that cameras alone don’t stop police misconduct. As Reason‘s Eric Boehm wrote, it has sometimes seemed that the nation’s police are determined to demonstrate exactly why people are protesting them in the first place. 

Yet even if videos aren’t directly changing police behavior, they are almost certainly contributing to the public’s shifting perception of that behavior, bolstering the case made by activists by making it harder and harder to deny. In turn, they are putting reforms that might have seemed difficult or impossible just a few years ago within reach. On its own, filming police brutality isn’t enough. But each new clip that circulates shows us the vivid and excruciating reality of what has happened and what is happening—and demonstrates, over and over again, what desperately needs to change. 

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Fed Has No Idea What Is Coming: Sees Unemployment Rate Between 7% And 14% This Year

Fed Has No Idea What Is Coming: Sees Unemployment Rate Between 7% And 14% This Year

Tyler Durden

Wed, 06/10/2020 – 14:30

While the Fed’s summary economic projections showed a rather optimistic rebound in the average forecast for various economic indicators, including GDP surging from -6.5% in 2019 to 5.0% in 2021 and 3.5% in 2022, while unemployment slides from 9.3% to 6.4% in 2020 and more in 2021…

… the reality is that there appears to be a huge dispersion in opinions at the FOMC, with the unemployment rate seen between 7% and 14% this year, which means means at least one person at the Fed expects the unemployment rate to be higher at the end of 2020 than was reported last week.

while GDP is seen in a huge range of -10% to -4.2%. And while things get a bit better in 2021, even here the range is surprisingly wide, with unemployment from 5.9% to 7.5% while GDP is expected to be in a range of -1% to 7%.

As Bloomberg’s Chris Condon notes, “that’s a tremendous gap and underscores the level of uncertainty facing policy makers. This continues in the 2021 projections. The range for unemployment there goes from 4.5% out to 12%. Remarkable.”

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Watch Live: Fed Chair Powell Tries To ‘Blue Pill’ Americans Into Believing ‘Market’ Is Right

Watch Live: Fed Chair Powell Tries To ‘Blue Pill’ Americans Into Believing ‘Market’ Is Right

Tyler Durden

Wed, 06/10/2020 – 14:25

Just how dismal can Fed Chair Jay Powell’s summary of his forward projections for the American economy be (to justify his unprecedented $80 billion per month malarkey) before ‘investors’ get spooked and decide to swallow the ‘red pill’ of reality instead…

…which do you choose – ‘blissful ignorance’ or ‘unpleasant truth’?

If that fails, Powell can always point to this…

Watch live here (due to start at 1430ET):

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Gold Gains As Fed QE Commitment Crashes Dollar

Gold Gains As Fed QE Commitment Crashes Dollar

Tyler Durden

Wed, 06/10/2020 – 14:21

In what seems to amount to implicit debt monetization, The Fed’s commitment to buying $80 billion a month of Treasuries appears to have awakened some further anxiety over the future of fiat.

Gold is surging, the dollar is down…

…bonds are undecided and of course Nasdaq is flying…

At what point do these two series converge?

 

 

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Fed Will Purchase “Approximately” $80BN In Treasurys Per Month, $40BN In MBS

Fed Will Purchase “Approximately” $80BN In Treasurys Per Month, $40BN In MBS

Tyler Durden

Wed, 06/10/2020 – 14:14

With traders curious if the Fed will leave open-ended QE or will formalize asset purchases to a specific monthly amount, the Fed left it somewhat open-ended, with the Fed statement saying “the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning”, however in a separate Operating Policy note from the NY Fed, we read that:

  • the Desk plans to continue to increase SOMA holdings of Treasury securities at the current pace, which is the equivalent of approximately $80 billion per month

and:

  • the Desk plans to continue to increase SOMA holdings of agency MBS at the current pace, which is the equivalent of approximately $40 billion per month

In other words, while not explicit, one can expect the current run-rate of about $4BN per day/$20BN per week in TSY purchases to continue. It also means that, all else equal, the Fed will monetize just under $1 trillion in Treasury per year at the current pace, which however may be less than the market was expecting in light of the massive debt issuance on deck.

Commenting on this, Grant Thornton economist Diane Swonk said that “Acting on mortgage-backed securities and Treasuries underscores their belief that more support is needed….The Fed does not see a victory in the employment bounce-back. The risk of deflation is still high and the economy needs more support to heal more fully.”

The NY Fed also said that “Treasury purchases will be conducted on a monthly basis, starting with the period from mid-June to mid-July, and will continue to be conducted across a range of maturities and security types.  The Desk will continue to roll over at auction all principal payments from SOMA holdings of maturing Treasury securities.”

Separately, for MBS, the NY Fed said that “Agency MBS purchases will be conducted on a monthly basis, starting with the period from mid-June to mid-July.  Total purchases during this monthly period are expected to be approximately $96 billion, which includes approximately $56 billion in purchases to reinvest principal payments from existing SOMA holdings of agency debt and agency MBS anticipated to be received in the month of June.  Agency MBS purchases will continue to generally be concentrated in recently produced coupons in 30-year and 15-year fixed rate agency MBS in the To-Be-Announced (TBA) market.”

The statement also adds that going forward, POMO schedules won’t be handed out every Friday, but will switch over to a once a month event:

The Desk will announce the planned monthly amount of Treasury and agency MBS purchases on or around the ninth business day of each month and will release tentative schedules of purchase operations twice a month, on or around the ninth and the nineteenth business days.  The first monthly purchase period will begin on June 12, 2020 and continue through July 13, 2020.  Updated information on purchase amounts and schedules can be found on the Treasury Securities Operational Details and the Agency MBS Operation Schedule pages.

In addition, the Desk will continue to buy agency CMBS at the current pace by conducting weekly operations of approximately $250 to $500 million with purchases including the reinvestment of principal payments from SOMA holdings of agency CMBS.”

Finally, in picking a line from the ECB, the NY Fed said that consistent with the FOMC directive, the Desk is prepared to increase the size and adjust the composition of its purchase operations as needed to sustain the smooth functioning of the Treasury, agency MBS, and agency CMBS markets.”

In short, this is about as close to a full commitment to debt monetization as the Fed is ready to go.

 

 

 

 

 

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FOMC To Continue “Approximately” $120BN In QE, No Negative-Rates Or Rate Hikes Signaled, Slashes GDP Forecast

FOMC To Continue “Approximately” $120BN In QE, No Negative-Rates Or Rate Hikes Signaled, Slashes GDP Forecast

Tyler Durden

Wed, 06/10/2020 – 14:05

Since The Fed’s last statement, on April 29th, one “asset class” has done particularly well as bonds, bullion, and the greenback have slipped lower. Spot the odd one out…

Rate trajectory expectations have had a wild ride in the six weeks since the last FOMC (drifting ionto negative rate expectations at one point) but are now back to being modestly ‘easier’ than at the last meeting…

Source: Bloomberg

As we detailed earlier,  the Fed is likely to focus on forward guidance on rates and asset purchases: it is a given that rates are on hold until normal economic service has been resumed, and then some, and also that the FOMC will continue to expand its special lending facilities even further despite the fact that the worst of the economic downturn is already behind us. However, the markets are only really going to be focused on four things:

  1. Will the Fed open the door even a crack to negative rates? The Fed does not seem to be in a hurry to tweak the IOER rate, even though that would help reduce the occurrence of negative implied Fed Funds rates and thus quell some of the speculation about negative US rates in our view. However, despite market chatter we believe that European- and Japanese-style negative rates are a no-go for the Fed.

  2. Will we see Yield Curve Control (YCC)? If so, which parts of the US Treasury curve will, Japanese- and Aussie-style, cease to function as a real market? Would it just be the short end of the curve? That leaves the door open for curve steepening of the kind seen in recent sessions, which carries the risk of real pain for borrowers. Moreover, with the massive expansion of US Federal debt, YCC out to 2 years would mean issuance at the short end and constantly having to roll it over. In other words, raising the Fed Funds rate again would not be possible until public debt was under more control – which realistically means never. Or might YCC be longer, say out to 7 years? This would give greater room to spread the looming trillions that will flow, and perhaps enough time for some optimists to presume an economic turn-around within that period is possible. Yet could we even see that financial totem of all totems, the US 10-year, under YCC? If so the global debt benchmark is not looked at, but sat on like a bench. Japan is already doing it.

  3. Can the Fed manage to do either of the above without the US Dollar falling out of bed? The structural bull argument for USD is still there, but current momentum is such that hinting at negative rates and/or pegging US yields could easily push it down. The Fed aren’t responsible for the USD, but they certainly know that is true. The question is whether they are either desperate enough about the outlook not to care, or are happy about a currency weakness they can pretend is nothing to do with them. Hello FX Wars! Join the queue behind the trade war (as China cancels some shipments of US goods already en route) and the Cold War (as the US senate de facto opens the door to banning all Chinese telcos from the US market). That said, there is also an emerging argument –one we have put forward since 2017– that in a Cold War it is a strong USD and not a weak one that is the greater US weapon. There is still unlikely to be a line of communication between China hawks in DC and the Eccles Building where the FOMC sit, but it’s still worth remembering what the geopolitical backdrop is.

  4. Can the Fed find a way to do even more than it already is without encouraging what many see –even by the standards of the mind-blowingly stupid examples around the word in recent decades– as an epic, lunatic, *dangerous* stock-market bubble? Indeed, can they do so without stocks tumbling down on top of the retail money arriving late to the party? “Excessive exuberance”: anyone recall how many years and bubbly Fed Chairs ago that was?

All eyes will be on the dotplots today to see if any Fed heads are forecasting negative rates (and if so prepare for chaos to break out).

And how Powell will explain The Fed’s tapered bond-buying as repo-liquidity needs are resurging…

Good luck Jay!

And so, the question is, did they deliver what the market was demanding?

The Fed has no plans to raise rates through 2022…

How wrong has The Fed been before? Remember in 2018 they expected 2020 rates to be up at least 3.5%… not ZERO…

The Fed does not mention Yield Curve Control in the statement (wait for the presser).

The Fed commits to buy Treasuries, MBS, “at least at the current pace.”

The Fed has effectively formalized an $80 billion per month bond buying QE:

Consistent with this directive, the Desk plans to continue to increase SOMA holdings of Treasury securities at the current pace, which is the equivalent of approximately $80 billion per month.  Treasury purchases will be conducted on a monthly basis, starting with the period from mid-June to mid-July, and will continue to be conducted across a range of maturities and security types.  The Desk will continue to roll over at auction all principal payments from SOMA holdings of maturing Treasury securities.  

The Fed forecasts 2020 GDP to plunge 6.5% but rebound to 5.0% in 2021 and 3.5% in 2022

Similar with unemployment: the Fed sees 9.3% Unemployment In 2020, 6.5% In 2021, 5.5% In 2022. As Bloomberg notes, a closer look at the unemployment forecasts shows a sizeable range of opinions. The low projection was for 7% by the end of 2020, while the high end was 14%: “That’s a tremendous gap and underscores the level of uncertainty facing policy makers. This continues in the 2021 projections. The range for unemployment there goes from 4.5% out to 12%. Remarkable.”

A similar wide range in the error bars for GDP shows just how unsure the Fed is about the economic future of the US:

As Bloomberg Economics Associate Eliza Winger notes:

“Assuming the economy contracts 37% in the second quarter, in-line with Bloomberg Economics’ projection, U.S. GDP will need to recover by an average pace of 12.6% in the second half of the year to achieve the Fed’s forecast of -6.5% for the year as a whole.

Full redline below:

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