It took years for the Democratic lawfare campaign against Donald Trump to backfire by helping him win back the presidency. The Trump administration’s ham-handed lawfare against Fed Chair Jerome H. Powell looks like it might have backfired in a matter of days.
Powell, whose term as chair ends in May, announced on Sunday that the Justice Department had sent him a criminal subpoena. Because this was obviously an attempt to bully the Fed — Trump has demanded lower rates — the political system rallied around the central bank’s independence. Crucially, Sen. Thom Tillis (R-North Carolina) threatened to use his perch on the Senate Banking Committee to hold up confirmation of Powell’s replacement until the investigation into the chair is closed.
That political blowback might have changed Trump’s calculation. On Friday, the president suggested that he would not nominateKevin Hassett to replace Powell. Hassett, the director of the National Economic Council, has been seen as the front-runner for the role. He has been regarded as the most politically loyal of any of the contenders, having served as a top economic adviser in both Trump administrations.
“I actually want to keep you where you are, if you want to know the truth,” Trump told Hassett on Friday at the White House. The comments are open to interpretation, but betting markets immediately and dramatically downgraded Hassett’s chances of getting the Fed job. The Justice Department’s swipe at Powell will increase the Senate’s scrutiny of his successor. The White House might be worrying that Hassett would now be too difficult to confirm.
Kevin Warsh, a Federal Reserve governor from 2006 to 2011, is now the favorite on betting markets. Warsh has written his share of sycophantic commentary about Trump. But he might have more credibility with the Senate as an independent actor because he isn’t a White House employee. Trump’s last nominee for the Fed’s board of governors, Stephen Miran, technically remains a member of the White House staff (on unpaid leave) while serving at the central bank.
If Warsh is more independent than Hassett, he might be less responsive to Trump’s demands to cut interest rates. Treasury yields ticked upward on Friday after Trump’s Hassett remarks, reflecting an expectation of higher rates.
It’s impossible to predict any Fed chair candidate’s behavior with confidence, and markets could be wrong, but the early indications are that the administration’s Fed brawl is hurting its own monetary policy agenda. It would be funny if it wasn’t so serious, but this week also shows that real constraints remain on the presidency.
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