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Federal Reserve Chair Jerome Powell sounded the klaxon Sunday evening about the Justice Department’s effort to intimidate the central bank.
“On Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment related to my testimony before the Senate Banking Committee last June,” he said in a video posted to the agency’s website.
Powell insisted that the threat had nothing to do with cost overruns on the renovation of the Fed buildings, but was rather an effort to destroy the bank’s independence: “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation.”
Financial markets wobbled, with the dollar dropping and gold rising in tandem. The White House rushed to blame Jeanine Pirro, the former Fox News conspiracy theorist and current US attorney for DC, insisting that she’d issued the subpoenas without telling anyone at Main Justice. Treasury Secretary Scott Bessent’s minions assured Axios that "the secretary isn't happy, and he let the president know." Even Republicans in Congress interrupted their furious seal-clapping for the glorious regime to momentarily furrow their eyebrows.
And it worked. Markets stabilized, betting that even this White House wouldn’t be stupid enough to jeopardize the independence of the Fed. TACO FTW … again!
Wannabe despot
In 2018, Trump decreed that Janet Yellen, at five feet tall, was too short to serve a customary second term as Chair of the Federal Reserve Board of Governors. Instead he elevated Jerome Powell, a Republican originally nominated to the Board by Barack Obama in 2012. Powell stands at six feet, but that did not impair his ability to do math, and he, too, continued the Fed’s gradual ratcheting up of interest rates as the US economy hummed along.
The central bank plays a crucial role in regulating the economy by setting the federal funds rate, which is the interest rate banks charge each other on loans. Virtually all lending is pegged to it, particularly home mortgages, and politicians always want lower rates — voters who feel rich are likely to be better disposed toward the party in power. But too much cash sloshing around causes inflation, and the Federal Reserve’s job is to “take the punchbowl away,” raising interest rates gradually in good times to hold down inflation and ensure there’s room to course correct if the economy runs into trouble.
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All this would be familiar to any tenth grade social studies student. And yet Trump seemed doggedly ignorant, whining that it was no fair that Obama got almost seven years of zero interest (really 0.25 percent). Never mind that Obama inherited the Great Recession thanks to the deregulatory excesses of the second Bush administration and the housing bubble.
Trump grumbled that Powell should be lowering interest rates, not raising them. But the “adults in the room” told him to put a sock in it because the stability of the US economy rests on the markets’ faith that the central bank is independent and Uncle Sam always pays his debts. (Trump threatened that second one too, suggesting that maybe the US would default on its bonds.)
Same as the first, but a whole lot worse
This time around, Bessent is what passes for a grown up — no mean feat when you look like Will Ferrell doing an SNL bit and your job is to pretend to believe that other countries pay tariffs.
Trump, too, is less restrained and loudly brays for Powell’s head.
Trump’s stable of not-grownups dutifully piled on to Powell. Chief among the attack dogs was Bill Pulte, head of the Federal Housing Finance Agency along with Fannie Mae and Freddie Mac, who uses his position to paw through confidential financial records seeking dirt on Trump’s enemies. He’s leveled mortgage fraud claims against New York Attorney General Letitia James, Sen. Adam Schiff, Rep. Eric Swalwell, and Lisa Cook, a member of the Fed’s Board of Governors.
Pulte was apparently unable to find anything in Powell’s personal records, so instead he accused Powell of fraud in the renovation of the Federal Reserve buildings.
Plans to renovate the Marriner S. Eccles Federal Reserve Board Building and the adjacent Federal Reserve East Building have been underway since 2019. The process included the Commission on Fine Arts, the National Capital Planning Commission, the DC Public Space Committee, the DC State Historic Preservation Office, and the National Park Service, as well as the relevant congressional oversight committees.
The buildings, both of which are on the National Mall, were constructed in the 1930s and have not been comprehensively updated since. They are full of asbestos and lead and situated on a literal swamp — all of which, along with Trump’s tariffs on steel, led to major cost overruns. As Bloomberg points out, the contractors who worked on the building’s foundation received an award for “excellence in the face of adversity” from a local trade association.
But Trump’s allies in right-wing media depicted the project as an orgy of decadence, and multiple Trump officials, including White House Deputy Chief of Staff James Blair, tweeted memes of Powell as Marie Antoinette.
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The Fed’s FAQ responds to questions like “Is there a new VIP dining room?” “Is there a new VIP elevator?” and “Do you have a new water features?” The answer to all of those is “no.” And the supposed “rooftop garden” is actually the front lawn of the East Building, which serves as the roof of an underground parking structure.
Trump, who just tore down the East Wing of the White House to build an unpermitted ballroom, suggested in July that Powell “didn't have proper clearance” for the Fed renovation. But unable to restrain himself, a second later he pivoted to the real reason for his antipathy.
“I think he's not doing a good job,” Trump snorted. “He's got a very easy job to do. You know what he has to do? Lower interest rates.”
Danger! Danger!
On Sunday, Powell sounded the alarm about Friday’s subpoenas relating to supposedly false testimony about the renovation before the Senate Banking Committee.
“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” he warned.
Trump believes he’s entitled to control the Fed and turn the money spigot on full blast. His buddy Recep Tayyip Erdogan figured the same thing and ordered Turkey’s central bank to cut interest rates repeatedly, even as inflation topped 80 percent in 2022. After securing reelection the following year, he jacked up interest rates to 50 percent for much of 2024, but has only managed to bring inflation down to about 30 percent.
Every living former Fed chair, along with several former treasury secretaries and members of the Council of Economic Advisors, signed on to a public letter cautioning that the erosion of the central banks’ independence would be catastrophic.
“This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly,” they warned. “It has no place in the United States whose greatest strength is the rule of law, which is at the foundation of our economic success.”
The backlash was strong enough to rouse Senate Republicans from their customary torpor.
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“If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none,” North Carolina Senator Thom Tillis said. “It is now the independence and credibility of the Department of Justice that are in question.”
Tillis’s imminent retirement may have something to do with his newfound spine. But he sits on the Senate Banking Committee, so his promise to oppose any nominees for the Fed “until this legal matter is fully resolved” ensures that none of Trump’s picks will move forward. His fellow Republican Lisa Murkowski agreed, warning on X that “if the Federal Reserve loses its independence, the stability of our markets and the broader economy will suffer.”
Meanwhile, at the White House, staff frantically texted reporters that they had nothing to do with Pirro’s gambit. Even Pulte distanced himself from the investigation, telling Bloomberg TV that "the DOJ is outside of my purview. This is out of my purview. I don't know anything about it, and I would defer you to the DOJ.”
For her part, Pirro blamed Powell for refusing to voluntarily come in for a chitchat with the people who were blasting out memes accusing him of multiple felonies.
“The word ‘indictment’ has come out of Mr. Powell’s mouth, no one else’s,” she whined on X. “None of this would have happened if they had just responded to our outreach.”
One of the few Republicans who dared defend the subpoenas, Republican Sen. Kevin Cramer, didn’t help the cause by obliviously copping to the whole thing being an extortion scheme.
“Maybe the point should be if you’re the attorney for Jay Powell and you want to avoid an indictment, how about you go to Jeanine Pirro and say, ‘I’ll make a deal. I’ll step down today if you drop the investigation today,’” he said on Fox Business. “To me, that would be a win-win for everybody.”
For the moment, it looks like the Fed’s independence is safe. But betting on Trump to do the sane thing only works until it doesn’t. Sending in the military to kidnap a foreign leader was unthinkable, and then it happened. The president is increasingly erratic and dictatorial, and with sentiment about the economy softening, he’ll certainly keep grabbing for the Fed’s interest rate lever. Meanwhile, his thuggish DOJ may have actually made it harder for the White House to exert control over the central bank.
Traditionally, the Fed chair resigns after the end of his chairmanship, even when there is time left on his term as a member of the Board of Governors. Everyone assumed that Powell would leave in May after his term as chair expires, even though he has two more years on the Board. But Axios reports that he may not leave, depriving Trump of the opportunity to replace him with a toady. And all this is taking place on the eve of oral argument in the Trump administration’s effort to persuade the Supreme Court to reverse its prior stay and let him fire Lisa Cook.
Remember back in 2017 when Trump’s supporters said he was playing 10-dimensional chess?
