June 25, 2019
Craig Holke, Investment Strategy Analyst
Charlotte Woodhams, Investment Strategy Analyst
Courts, Visas, and Dark Clouds
President Trump has appointed judges at a record pace. Federal and Supreme Court judges have an indirect effect on the U.S. economy and markets through their regulatory rulings.
- While courts generally have an indirect effect on U.S. markets and the economy, some decisions can have wide-ranging impacts. Regulatory changes and subsequent court decisions can negatively affect corporate revenues, with products or entire lines of business being impacted.
- According to a study reviewing court of appeals cases, Republican-appointed judges tended to side with businesses when determining the legality of a regulation.1 In this regard, these judges may be viewed as more business friendly and less likely to negatively impact corporate earnings.
- Should politicians continue to make it easier to place an administration’s judicial nominees on U.S. courts, we could see increasing regulatory uncertainty. This, in turn, could negatively impact companies’ ability to make longer-term investment decisions.
President Trump has made significant court appointments
Judicial appointments are one of a president’s longest-lasting legacies. As U.S. presidents have taken office, they have sought to shape the courts according to their party’s values. In this, President Trump is no different from his predecessors—as he seeks those who share a similar view on how laws should be interpreted and cases decided. Federal regulations are created in response to executive branch actions or laws passed by Congress. When there are challenges to a regulation’s legality or its implementation, federal courts are the final decision-makers. The ability to shape the ideology of U.S. courts lasts significantly longer than any president’s term.
As of 2018, there were 9 Supreme Court, 179 court of appeals, and 663 district court judgeships in the United States.2 Presidents nominate candidates to fill vacant judgeships. Those candidates must then be approved in the Senate through a series of hearings and votes. In recent years, Congress’ partisan nature has led to a longer approval process, and it has limited the filling of open judgeships. In response to Republicans’ blocking of President Obama’s nominees, former Senate Majority Leader Harry Reid changed Senate rules in 2013 to allow a simple majority to approve executive and judicial nominees. (This was known as the “nuclear option,” due to its effect on congressional partisan relations.) However, it did not change the 60-vote threshold for Supreme Court nominees. That 60-vote threshold was changed in 2017 by Republicans to end the Democratic filibuster against the nomination of Neil Gorsuch. Earlier this year, Senate Majority Leader Mitch McConnell led a change to reduce debate time on certain appointments from 30 hours to 2 hours. This does not apply to nominees for the Supreme Court or cabinet secretaries. All of these changes have made it easier for presidents to fill open judgeships.
How successful has President Trump been in his judicial appointments? Chart 1 shows the number of judges appointed by President Trump, President Obama, and President George W. Bush at the same point in their presidency. In total, President Trump has appointed more judges than President Obama but fewer judges than President Bush appointed. As of May 15, 2019, President Trump had appointed 2 Supreme Court, 40 court of appeals, and 60 district court judges. The president’s focus has been on the court of appeals, because these judges essentially act as final arbiters for the majority of cases.
President Trump still has plenty of time to appoint more judges. The acceleration of the confirmation process could expedite these appointments. As there are a number of current openings and pending nominees, President Trump’s ability to influence federal courts is likely to significantly outlast his time in office.
The long-term impact of changing Senate rules could lead to faster appointments of judges. It also could result in fewer impediments to reshaping the judiciary in the future, should control of the presidency and the Senate shift to the Democrats. This also could lead to change in the legal interpretation of regulations and leave businesses and consumers with long-term uncertainty on how laws may be interpreted.